Pound US Dollar Forecast: GBP/USD Exchange Rate Rises as US-China Trade Tensions Continue to Build

Update: GBP/USD Exchange Rate Lifted by Labour Brexit Proposals

The Pound US Dollar (GBP/USD) exchange rate continued to race higher this afternoon as the pairing was bolstered by hopes of a softer Brexit.

This came as reports suggested that Labour would table a number of further amendments to the EU Withdrawal Bill in an effort to block a ‘no deal’ Brexit
Shadow Brexit secretary Keir Starmer suggested that it would be ‘totally unacceptable’ for the government to move forward if MP’s rejected the final deal.

The move was seen as reducing the chances for a hard Brexit, and helped to drive the GBP/USD exchange rate to a new seven-week high.

GBP/USD Exchange Rate Bolstered by Uptick in UK Wage Growth

The Pound to US Dollar (GBP/USD) exchange rate ended the session close to a one-month high last week as Sterling sentiment was buoyed by some upbeat data and the Bank of England’s (BoE) latest rate decision.

Some upbeat inflation and employment data supported GBP in the first half of last week’s session, with investors particularly impressed by a strong uptick in wage growth.

This fed into the BoE’s rate decision on Thursday when it signalled that a rate hike was likely on the cards, although the Pound’s gains were tempered somewhat by suggestions that a May hike had already been priced in.

Meanwhile the US Dollar fell back last week as the currency suffered from rising political and trade uncertainty.

However it was the outcome of the Federal Reserve’s policy meeting on Wednesday that prompted the largest movement in USD.

This saw the US Dollar fall sharply as the bank’s policy statement indicated there would only be a total of three rate hikes this year, rather than the four that some investors had speculated.

US Dollar (USD) Weakened by Trade Concerns

The US Dollar is on the back foot at the start of this week’s session, tumbling against the Pound and the majority of its other peers as Trump’s trade policies continue to unsettle markets.

This follows the announcement that Trump’s administration would implement tariffs on $50bn worth of Chinese imports, a move that has understandably angered Beijing.

While China’s initial response has been fairly measured, with only $3bn worth of US imports being targeted, many analysts fear a more robust retaliation in the future, something that could quickly escalate into a global trade war.

Terry Chan, managing director at S&P Global Ratings said:

‘More aggressive moves could escalate into a full-blown trade war between the world’s two largest economies–with spill-over effects on global business confidence, investment, and growth.’

Sterling (GBP) Strengthens despite Slide in Mortgage Approvals

At the same time the Pound continued to tick higher against the US Dollar this morning despite a larger-than-expected decline in UK mortgage approvals in February.

According to data published by UK Finance, approvals for home loans stumbled from 40,000 to 38,000 last month, falling below expectations of a more modest decline to 39,000.

This leaves approvals at their second lowest level since 2016, with Brexit uncertainty and the financial pressures faced by household largely being blamed for the decline.

However the outlook from analysts is a little brighter as they suggest rising wage growth and more subdued inflation should ease this pressure in the coming months.

GBP/USD Forecast: UK GDP Figures in Focus?

Looking ahead a slow week of data means that the most notable UK economic figures this week are likely to be the final GDP reading for the fourth quarter 2017.

Economists are not forecasting any great surprises here, with the reading expected to confirm growth slowed from 0.5% to 0.4% at the end of 2018, possibly weakening the GBP/USD exchange rate.

Meanwhile the focus for US investors will be on the release of the Fed’s preferred measure of inflation, with the latest PCE Price Index potentially weighing on the US Dollar if it suggests inflation slid in February.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail