Pound to US Dollar (GBP/USD) Exchange Rate Trends Near Lows Despite Trade Uncertainties
UPDATE 14:12 BST: Despite persistent concerns that US government’s stance on trade is becoming more protectionist and could lead to a trade war, the Pound Sterling to US Dollar (GBP/USD) exchange rate has remained weak since markets opened.
Amid a lack of reasons to buy the Pound (GBP) and concerns that Britain’s growth outlook is not improving despite a rebound in retail sales, Sterling has remained weak.
The US Dollar (USD), on the other hand, continues to find support in Federal Reserve rate hike bets, as well as market demand for safe haven currencies.
Pound to US Dollar Exchange Rate Fails to Hold Ground despite BoE Meeting This Week
Despite signs of worsening trade prospects between the US and China, the US Dollar (USD) remained appealing to investors and the Pound Sterling to US Dollar (GBP/USD) exchange rate continued to tumble as a result.
Due largely to central bank developments, GBP/USD slumped from the interbank level of $1.34 to $1.32 last week. GBP/USD fell again when markets opened on Monday, but has thus far been able to hold its ground above last week’s lowest level.
The biggest news last week was the Federal Reserve’s latest monetary policy decision. The Fed hiked US interest rates as expected, while also hinting that there could be an additional two rate hikes before the year is up.
This has kept the US Dollar looking appealing versus a weak Pound (GBP). Investors are hesitant to buy Sterling ahead of this week’s upcoming Bank of England (BoE) policy decision.
Pound Sterling (GBP) Exchange Rates Limp as UK Growth Outlook Dims
Market anticipation over the upcoming Bank of England (BoE) policy decision was not enough to help the Pound (GBP) hold its ground on Monday, as concerns about Britain’s growth outlook weighed on the currency.
The British Chambers of Commerce (BCC) published its latest UK growth forecasts on Monday, showing the group’s outlook for both 2018 and 2019 was worse than it had previously been.
The 2018 outlook was revised down from 1.4% to 1.3%, and from 1.5% to 1.4% in 2019. The 2020 growth forecast remained unchanged at 1.6%.
Adam Marshall, Director General at the BCC, argued that the government needed to do more to protect UK businesses through the uncertainty ahead. He said:
‘Our forecast should serve as a wake-up call to government – as it demonstrates that ‘business as usual’ is not an option when it comes to the economy.
With firms facing ongoing Brexit uncertainty, increasing global protectionism and instability in some parts of the world that will impact on costs and profits, now is the time for more robust action to support business confidence and investment.’
As a result of the group’s bearishness and the disappointing UK inflation and wage stats last week, the US Dollar (USD) was able to take advantage of Sterling weakness.
US Dollar (USD) Exchange Rates Bullish Despite US Trade Jitters
Concerns about worsening trade tensions between the US and China have had little impact on the US Dollar (USD) since last Friday, as Dollar traders remain optimistic about the US outlook due to rising Federal Reserve interest rate hike bets.
The Federal Reserve took a hawkish stance in last week’s June policy decision. It hiked US interest rates as expected and indicated it could still hike rates another two times before the end of the year.
As Fed interest rate hike bets rise and the US economic outlook remains strong, the US Dollar has been able to sustain most of its gains versus the Pound (GBP) – though it did slip from its best levels on Friday.
Demand for the US Dollar was limited slightly by news that the US and China had imposed another round of trade tariffs on one another. This worsened concerns that the trade tensions could lead to a full blown trade war.
However, according to Yukio Ishizuki from Daiwa Securities, things could have been worse:
‘The reaction by currencies to the trade developments has been mostly limited as the U.S. measure and China’s response were in line with expectations,’
Pound to US Dollar (GBP/USD) Forecast: Bank of England (BoE) Decision in Focus
US Dollar (USD) trade is likely to be influenced by US-China trade developments and US housing data over the coming sessions, but the Pound to US Dollar (GBP/USD) exchange rate’s movements could be limited ahead of Thursday’s anticipated Bank of England (BoE) policy decision.
Sterling (GBP) was one of the currencies to avoid being overly affected by last week’s Federal Reserve and European Central Bank (ECB) policy decisions, largely due to market anticipation for this week’s BoE meeting.
Investors are hoping for the bank’s views on Britain’s economic outlook, following disappointing UK inflation and wage stats last week.
If the bank is more dovish than expected about Britain’s economy or plays down the possibility of a UK interest rate hike before the end of the year, GBP/USD could be in for another week of losses.
On the other hand though, if the bank shows confidence that price pressures will hold above targets for longer, or if it is more optimistic about Britain’s economy, the Pound to US Dollar (GBP/USD) exchange rate could mount a recovery.