David Davis Reaffirms Brexit Backstop Time Limit – Pound US Dollar (GBP/USD) Exchange Rate Drops 0.25%

Pound US Dollar (GBP/USD) Exchange Rates Forecast to Recover after Brexit by Latest Reuters Poll

UPDATE: 15:24 BST: The long-term outlook for the Pound US Dollar (GBP/USD) exchange rate grew increasingly positive today on news that many economists expect Sterling to recoup its losses from post-Brexit lows by the time Britain has left the European Union.

According to a Reuters poll, the majority of analysts predict that in a month’s time GBP/USD will trade at $1.33, before continuing to climb to $1.35 in six months’ time and $1.41 by a year.

This upbeat outlook was largely due to investor hopes for a hawkish BoE – with many expecting a rate rise as soon as August this year – but also on analyst anticipation for a good divorce deal with the EU.

At the time of writing, however, this news did little to prevent GBP/USD from floundering.


Pound US Dollar (GBP/USD) Exchange Rate Proves Volatile – Brexit Talks and Forecasts Dominate Headlines

Today’s UK data calendar was rather sparse and left the market spotlight predominantly fixated on Brexit – but that certainly didn’t mean investors had nothing to focus on.

The Pound US Dollar (GBP/USD) exchange rate fluctuated throughout the day, with an upbeat Reuters poll about Sterling sentiment initially driving the pairing higher, only for it to fall in the early afternoon on concerns that the Eurozone could reject the latest rendition of the Brexit backstop draft.

Investors were concerned that the growing spat between UK Prime Minister Theresa May and Brexit Secretary David Davis regarding the plan would eventually reach boiling point today, but these fears were allayed on news that the backstop paper has now been amended to express ‘in much more detail’ the time-limited nature of the proposal.

Despite this apparent progress investors continued to remain worried about the prospect of a no deal Brexit; an outlook that weighed on demand for the Pound.

US Trade Deficit & Jobless Claims Fall – US Dollar (USD) Exchange Rates Bolstered

The US Dollar (USD) posted a mixed performance on Thursday, supported by news that the US trade deficit hit a seven-month low in April, but limited by the latest Reuters poll, which predicted that the US Dollar’s reign might not last much longer.

According to the poll, 60% of analysts predicted that the US Dollar’s recent resurgence would only last about three months, with 10 analysts expecting it to end within a month.

Daniel Hui, Executive Director of Global FX Strategy at J.P. Morgan shared this outlook:

‘We find it premature to crown the dollar king and extrapolate continue broad USD strength into and through the second half of the year. Cyclical divergence favouring the USD is fading as global data gradually stabilises and global policy normalisation is still the baseline case.’

Nevertheless, economic indicators continued to point to strength within the US economy, with the number of claims for state unemployment benefits falling by 1,000 to a seasonally adjusted 222,000 for the week ending 2 June.

This news pointed to continued tightening in labour market conditions in the US and, given the historically low unemployment rate and uptick in wage growth, helped to pave the way for a rate rise by the US Fed next week.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: What can we expect from the US Fed’s Rate Decision

The Pound US Dollar (GBP/USD) exchange rate could face pressure next week depending on the sentiment revealed in the US Federal Reserve’s latest monetary policy meeting.

On one hand, investors have already priced in a rate rise at this meeting, which could, effectively, leave the ‘Greenback’ sluggish even if the baseline interest rate is raised.

On the other hand, investors will be keeping a close eye on the accompanying statement and the sentiment of policymakers – with any hint that the bank will raise interest rates four times this year, rather than three, being capable of putting the Pound Sterling US Dollar exchange rate under greater pressure.

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron