Pound to US Dollar Exchange Rate Forecast: GBP/USD Strength Limited as Investors Await Key Data

Update: Pound to US Dollar Exchange Rate Fails to Hold Best Levels Ahead of Week’s Data

Anticipation for key UK and US data due for publication in the coming days is making investors hesitant to continue buying the strengthening Pound to US Dollar (GBP/USD) exchange rate.

Demand for the US Dollar (USD) improved slightly on Tuesday afternoon, limiting GBP/USD gains, despite concerns about US stances on global trade.

Lower demand for risky assets, as well as weak Eurozone data this week so far, has also made the US Dollar more appealing and helped it to hold against Sterling gains.

GBP/USD investors are anticipating UK services stats due on Thursday and US Non-Farm Payroll data on Friday.

Pound to US Dollar Exchange Rate Strength Improves Amid US Trade Concerns

Following last week’s plunge, demand for the Pound against the US Dollar quickly improved when markets opened this week. A strengthening Pound (GBP) was easily able to gain against an unappealing US Dollar (USD).

Last week saw GBP/USD tumble from the week’s opening interbank level of $1.41 to $1.40, but since markets opened on Monday the pair has been climbing again and the interbank rate is edging closer to $1.41.

Analysts are expecting the Pound to US Dollar exchange rate to strengthen this month, as April is typically a good month for Sterling. GBP/USD has advanced every April for the past 13 years.

Sterling’s potential for gains could be even stronger if the US Dollar continues to be pressured by uncertainties over the US trade stance. The US Dollar has seen limited strength on concerns that US trade protectionism could spark a global trade war.

Pound (GBP) Benefits from Brexit and Bank of England (BoE) Expectations

Sterling typically performs strongly in April, so it’s convenient that the currency has seen stronger support since late-March when significant Brexit developments boosted the Bank of England (BoE) outlook and the Pound outlook itself.

Thanks to agreements between the UK and EU over the terms of a post-Brexit transition period, markets are now more confident that Britain will be able to avoid a ‘cliff-edge’ scenario, and ‘hard Brexit’ concerns have further lightened.

As there is finally a little more clarity in the Brexit outlook, the Bank of England has ramped up its hawkish rhetoric and markets now widely expect a May interest rate hike from the bank.

UK economic confidence continued to improve slightly this week which helped to support the Pound. Markit’s March manufacturing PMI beat expectations.

While the previous manufacturing PMI was revised lower from 55.2 to 55.0, the March figure printed at 55.1 rather than the forecast 54.7.

US Dollar (USD) Exchange Rates Weakened by Trade Jitters and US Data

Investors have had little reason to buy the US Dollar in recent weeks, amid persistent anxiety that the Donald Trump is sticking to his protectionist rhetoric on global trade, as well as mixed US ecostats.

Last week saw the US maintain a tough stance on tariffs placed on US imports of Chinese goods, and China retaliated by placing tariffs of up to 25% on Chinese imports of many US food products.

Still, the US Dollar’s losses have been limited so far this week as hope still remains that a potential trade war could be averted, especially as analysts have perceived the response as being relatively meek.

According to David Madden from CMC Markets:

‘Beijing decided to impose levies on approximately $3 billion worth of goods from the US. In the grand scheme of things, China’s response hasn’t been too aggressive, but dealers fear we could be starting a long trade war.’

The US Dollar has found little support on recent US data. Monday saw the publication of March’s US manufacturing PMI from ISM. While the figure missed the forecast 60.0, it still printed at a strong 59.3.

Pound to US Dollar (GBP/USD) Forecast: Further Gains Ahead?

The Pound to US Dollar exchange rate has started April off bullishly and that trend could continue throughout the months according to analysts.

Banks such as Mizuho and Rabobank have noted that Sterling tends to over-perform in April, due partially to incoming capital during this period.

However, some analysts have noted that due to the Pound’s strong performance in March, its potential for outperforming in April is a little more limited than usual.

GBP/USD strength could improve in the coming days if UK data impresses investors. Britain’s March construction PMI will be published on Wednesday, followed by key services and composite stats on Thursday.

As services make up the majority of Britain’s economic output, the services PMI could give investors a stronger idea of how Britain’s economy performed in March.

Key US data will also be published in the coming days which could influence the US Dollar and potentially help it avoid losses if they impress.

ADP’s US employment change data will be published on Wednesday, as will ISM’s non-manufacturing PMI from March. March’s key US Non-Farm Payroll report will be published on Friday.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard