Pound to US Dollar Exchange Rate Advances Ahead of Major Week for UK News
Despite a lack of reasons to buy the Pound (GBP) this week, the Pound to US Dollar (GBP/USD) exchange rate has advanced this week and could sustain most of its gains unless the US Dollar (USD) strengthens notably on Friday.
Due largely to US Dollar (USD) weakness, GBP/USD has surged from the week’s opening level of 1.3849 to above 1.39 in recent sessions. GBP/USD touched on a weekly high of 1.3993 but generally trended nearer 1.3955 on Thursday.
As Sterling has gained despite a lack of domestic support, the currency could see another week of gains if next week’s key UK data and anticipated Brexit developments impress traders.
This also depends on if the US Dollar continues to be weakened by US political uncertainties and ‘trade war’ fears, which are among the main reasons for the currency’s current broad weakness.
Pound (GBP) Exchange Rate Strength Limited by Brexit Uncertainties
The Pound outlook has been full of uncertainties since February, as UK and EU Brexit negotiators continue to face disagreements and obstacles in talks.
As a result, it is still highly unclear to markets whether or not a ‘hard Brexit’ can be avoided and this has left the Pound range-bound.
Tuesday’s UK Spring Statement from the UK Treasury gave investors little reason to buy the Pound either.
The Treasury took an optimistic tone on Brexit and Britain’s economic outlook, but the independent Office for Budget Responsibility (OBR) and economic analysts found Britain’s forecast growth slowdowns to be cause for concern.
Investors are also concerned that the UK and EU may not be able to agree to a post-Brexit transition period during next week’s EU summit.
US Dollar (USD) Exchange Rates Fall on US Trade and Political Concerns
Political uncertainty has dragged on the US Dollar once again this week and this has been the primary cause of GBP/USD gains since Monday.
Earlier in the week, the US Presidential administration confirmed that Secretary of State Rex Tillerson had been sacked.
Tillerson had been on the job for just over a year and will be replaced by CIA Director Mike Pompeo. The uncertainty of change in the highest US diplomatic position left the US Dollar unappealing.
On top of this, the US Presidency’s new pick for economic adviser, Larry Kudlow, has indicated that US and its trading allies should take trade action against China, worsening concerns that the US could spark a ‘trade war’.
China has responded to the possibility of a ‘trade war’ by indicating that it will hit back if the US sparks one.
Despite decent economic data in the US, Federal Reserve interest rate hike bets slipped in the last week as US inflation results slowed as expected. This disappointed hawkish investors hoping for the US Dollar outlook to keep rising.
Pound to US Dollar Forecast: GBP/USD Outlook Will Rise if Brexit Transition is Agreed
Friday’s US Michigan University consumer confidence data could cause some late-week Pound to US Dollar (GBP/USD) exchange rate movement before markets close for the weekend, but the pair is still likely to sustain most of this week’s gains.
Could GBP/USD continue to climb though? If the US Dollar remains weak on US political uncertainties and next week’s UK news impresses, it seems likely.
Multiple major UK ecostats will be published next week including inflation, wages and retail sales, and the Bank of England (BoE) will hold its March policy decision on Thursday.
If any of this news surprises investors it has the potential to influence Pound trade, but any Brexit news from the EU summit being held from the 22nd to the 24th could be even more influential, especially for the long term outlook.
The UK government is expecting to finally secure a post-Brexit transition period agreement during the EU summit. If a transition is agreed, ‘hard Brexit’ concerns will lighten considerably and the Pound to US Dollar (GBP/USD) exchange rate will strengthen.
Next week will be a key week for US Dollar trade too, as the Federal Reserve will also hold its March policy decision.
However, if US political or trade concerns persist investors may not find the US Dollar too appealing even if the Fed takes a hawkish tone.
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