Pound US Dollar Exchange Rate Slips on Monday
Despite attempts from the Pound to hold its ground throughout Monday trade, GBP USD slipped again when American markets opened on Monday as the US Dollar began what looked to be another week of solid trade.
Monday’s US data also came in strongly. Markit’s preliminary US October manufacturing PMI beat expectations, rising from September’s disappointing 51.5 score to hit 53.2.
Concerns about any potential post-Brexit trade deal were highlighted once again on Monday, weighing on Pound strength. This limp GBP movement could continue until news comes out of development in Brexit plans, or until a particularly influential UK ecostats (such as Q3 growth) is published.
(Published 14:40 BST 24/10/2016)
The Pound US Dollar exchange rate has already lost over 25 cents in value since Britain voted to leave the EU in June, but recent US Dollar bullishness could extend GBP USD weakness in the coming months.
GBP USD recovered almost half a cent last week after trending near its worst levels in over 31 years, but can this trend continue?
Pound (GBP) Limp as Brexit News Dampens Effects of Data
Sterling has not seen a week of considerably solid performance for well over a month, with last week being its best run in a while.
This is largely because GBP has been continuously weighed down by market fears about Britain leaving the European Union’s single market, to the point where even strong British economic data has been largely ineffective at keeping the Pound afloat.
Recent weeks have seen increased speculation that the Pound is becoming a currency increasingly influenced only by political (especially Brexit) news, rather than Britain’s latest economic data.
This has also worked in reverse, however. Last week, UK markets were cheered by hopes that British MPs would have a vote on the final Brexit agreement following negotiations. This caused solid GBP performance last week, despite underwhelming British ecostats.
US Dollar (USD) Rally Extends on Presidential Election and Fed Rate Hike Bets
The US Dollar has performed strongly in recent weeks as US traders are becoming increasingly confident that the US markets will see an extended period of stability.
Bets that democrat Presidential nominee Hillary Clinton could win the presidency have bolstered USD appetite due to her similarity in economic policy to current US President Barack Obama.
Strong economic data, as well as comments from Federal Reserve officials, have caused an uptick in bets that the Fed will hike US interest rates in December. This has been the primary reason for the US Dollar’s strength in the last week.
Pound US Dollar Forecast: Further Lows Likely for GBP USD in 2016 and 2017
The Pound US Dollar exchange rate may have seen its fair share of 31-year-lows in recent weeks, but the GBP USD exchange rate looks on track to continue sliding when taking the above factors into account as well as current forecasts.
Markets now widely believe that not only will Clinton win the US Presidency just over two weeks from now, but that the Fed will hike US interest rates in December.
Both of these predictions will mean an extended period of US market stability and US Dollar strength if they turn out to be true. Sterling’s upside risks are slim in comparison.
While this week’s Q3 UK Gross Domestic Product (GDP) scores may bolster GBP demand if they impress, being the first quarterly growth data to be collected since the Brexit vote, the Pound will continue to face considerable pressure.
Very low expectations that Britain will be able to maintain access to the European Union’s single market will heavily limit Sterling’s recovery potential well into the long term. The uncertainty of Britain’s trade future is seen directly in the lack of market drive towards GBP investment.
At the time of writing, the Pound US Dollar exchange rate trended in the region of 1.22, while the US Dollar Pound exchange rate traded at around 0.81.
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