Pound to US Dollar Exchange Rate Falls from Highs as US Government Reopens
Could the US Dollar’s (USD) recent bearishness be coming to an end? That’s what some investors believe as the Pound to US Dollar (GBP/USD) exchange rate rebounded from highs following news that the weekend’s US government shutdown had ended after less than a business day.
The US government shutdown over the weekend as Congress failed to agree on a funding bill, but when US markets opened on Monday a new deal was quickly reached which saw the US government funded until the 8th of February.
As the shutdown lasted even shorter than many investors expected, the US Dollar was bought back from its recent lows.
GBP/USD hit its best levels since the 2016 Brexit vote overnight, 1.3997, but on Tuesday morning the pair fell from its highs. The key level of 1.40 is being seen as a resistance ceiling for the pair too, so it will take a lot for GBP/USD to rise above this level.
Pound (GBP) Exchange Rate Support Limited despite Impressive Public Borrowing
Recent UK data has helped to limit Pound (GBP) losses, but the British currency has slipped against the strengthening US Dollar despite that.
Tuesday saw the publication of Britain’s December public sector net borrowing results. The figure came in at £-0.98b, rising from the previous result of £-6.65b which itself had been revised higher from £-8.12b.
It likely came as good news for UK Chancellor Philip Hammond and could help him meet fiscal targets for the 12 months leading up to March 2018.
The Confederation of British Industry’s (CBI) latest data was solid too. The Q1 business optimism index rose from -11 to 13, while January’s industrial trends orders report came in at 14 rather than falling to 12 as expected.
US Dollar (USD) Demand Bolstered by ‘Safe Haven’ Appetite
As well as the US government shutdown ending quicker than expected, the US Dollar has also benefitted from rising demand for ‘safe haven’ currencies.
As a ‘safe haven’ currency, the US Dollar becomes an appealing buy in times of market uncertainty.
This is why the currency strengthened this week, following news that the US had approved controversial trade tariffs to be placed on imports. The tariffs will affect trade with China and South Korea the heaviest.
Amid concerns that the US President was looking to step up action on his ‘America First’ trade policy, markets have become anxious about how the trade restrictions and more potential restrictions in the future might impact the global growth outlook.
Pound to US Dollar (GBP/USD) Forecast: UK Wage Data to Impact Outlook
While the Pound to US Dollar (GBP/USD) exchange rate will likely struggle to break the key level of 1.40, the more appealing Sterling becomes the more likely that is to happen.
Pound investors are highly anticipating Britain’s November job market report, due to be published on Wednesday, for the latest data on UK wage growth.
As UK wage growth was unable to keep up with surging inflation in 2017, it caused a household pay squeeze that analysts feared could have a negative impact on Britain’s consumer-facing economy.
As a result, if UK wage growth beats expectations and comes in closer to inflation than expected in this week’s data, it could cause fresh hope that the pay squeeze could end in the coming year.
This might also put pressure on the Bank of England (BoE) to take a more hawkish tone on UK monetary policy in 2018, which would of course make Sterling more appealing in the long-run.
However, some analysts still perceive the Pound as having been overbought against the US Dollar, with many Brexit uncertainties remaining.
The US Dollar could take advantage of this and continue its recovery rally in the coming days, particularly if US data including home sales and growth results impress.
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