Pound to US Dollar Exchange Rate Climbs from Lows as UK Government Offers Concession in Brexit Vote
UPDATE 15:16 BST: The UK government looks on track to avoid a defeat over its Brexit bill in the House of Commons, with a concession being offered to potential Conservative rebels.
Markets had been anxious that the UK government’s Brexit plans were facing too many obstacles, causing doubts about the government’s ability to carry out a smooth Brexit and leaving Sterling (GBP) looking unappealing.
However, the Pound to US Dollar (GBP/USD) exchange rate edged away from its worst levels as the government announced a concession that was just enough to help gather enough votes to pass the bill through the Commons again.
Pound to US Dollar Exchange Rate Remains near 7-Month-Lows as Brexit Jitters Persist
The usual suspects continued to drive the Pound Sterling to US Dollar (GBP/USD) exchange rate on Wednesday, as Brexit uncertainties kept pressure on the Pound (GBP) while the US Dollar (USD) benefitted from market demand for safe havens.
Currently, GBP/USD is on track to see its second consecutive week of losses.
GBP/USD tumbled from the interbank level of $1.34 to $1.32 last week, and this week so far has largely been trending close to a low of $1.31 – its worst levels since November 2017.
Decent UK retail and industrial trends data published in the past week has been unable to help the Pound to hold its ground, as investors remain anxious about the UK government’s perceived lack of control over the Brexit process.
Meanwhile, the US Dollar’s recent winning streak has continued due to the US President Donald Trump’s persistent protectionist rhetoric and escalating trade tariffs on China. Concerns that a US-China trade war could break out boosted demand for ‘safe’ currencies like USD.
Pound (GBP) Exchange Rates Fail to Recover as Brexit Uncertainties Persist
Demand for the Pound (GBP) remained limited on Wednesday, despite this week’s only notable UK ecostat so far coming in well above forecasts.
The Confederation of British Industry’s (CBI) June industrial trends orders report was forecast to improve from -3 to 1, but instead it jumped to 13. This indicated that more manufacturing orders were being made.
However, despite the signs of recovering growth Sterling remained pressured by this week’s fresh round of Brexit uncertainties.
Earlier in the week, the UK House of Lords blocked the UK government’s Brexit bill in favour of an amendment supporting a ‘meaningful vote’ on any final deal.
The amendment would give UK MPs the opportunity to vote on the final Brexit deal, even if the process ends in ‘no-deal’.
The bill returned to the House of Commons on Wednesday, where voters will either side with the UK government or the House of Lords. This uncertainty has kept Sterling in low demand.
US Dollar (USD) Exchange Rates Supported by Safe Haven Demand
Mixed housing data has had little impact on US Dollar (USD) movement so far this week, as markets remain focused on headlines regarding the perceived possibility of a US-China trade war.
With US President Donald Trump continuing to ramp up trade tariff threats, markets have become increasingly fearful that a trade war could still happen.
As a result of this fear, investors have been buying the safe haven US Dollar. The US Dollar’s strength on safe haven demand has been the primary reason for its strength this week so far.
According to Omer Esiner, Chief Market Strategist at Commonwealth Foreign Exchange:
‘We are seeing the Dollar and Yen outperforming most of their peers especially those riskier, high-yielding currencies and those currencies more affected by disruptions in global trade.’
Pound to US Dollar (GBP/USD) Exchange Rate Forecast: Bank of England (BoE) Decision in Focus
Could the Pound to US Dollar (GBP/USD) exchange rate recover towards the end of the week? It depends heavily on the tone the Bank of England (BoE) takes in its June policy decision on Thursday.
The BoE decision has the potential to be this week’s most influential economic event and could alter the Pound (GBP) outlook if it surprises investors.
Of course, any surprising developments in US-China trade tensions could influence the US Dollar (USD) and drive GBP/USD too.
It is widely expected that the Bank of England will leave UK monetary policy frozen, but markets will be keeping a close ear out for the bank’s views on recent UK inflation and retail trends.
If slowing UK wages and inflation are enough to make the Bank of England more cautious about Britain’s economy, BoE interest rate hike bets will fall and GBP/USD could see further losses before the end of the week.
On the other hand, if the bank remains optimistic about Britain’s economic outlook due to a rebound in UK retail sales and signs of strengthening manufacturing orders, the Pound to US Dollar (GBP/USD) exchange rate could recover its recent losses.