Pound to US Dollar Exchange Rate Fails to Recover as US Data Impresses
UPDATE: Earlier in today’s European session, the Pound Sterling to US Dollar (GBP/USD) exchange rate edged away from its weekly lows as the Pound (GBP) was supported by speculation that Bank of England (BoE) Governor Mark Carney’s term could be extended in 2020 or even 2021.
However, the US Dollar’s (USD) persistent strength ultimately pushed GBP/USD lower again thanks to some impressive US data this afternoon.
August’s US manufacturing PMI from ISM beat forecasts of a slip from 58.1 to 57.7 and rose to 61.3.
The Pound to US Dollar exchange rate may have more luck recovering if BoE Governor Carney is offered a longer term as Governor, and if Wednesday’s upcoming UK services PMI impresses investors.
Pound to US Dollar (GBP/USD) Exchange Rate Sheds Most of Last Week’s Gains
UPDATE: Despite seeing a surge in demand last week, thanks to hopes of a closer post-Brexit partnership between the UK and EU, the Pound Sterling to US Dollar (GBP/USD) exchange rate lost most of those gains on Monday.
Analysts had warned that EU Chief Negotiator Michel Barnier’s comments just presented one possibility which would only work if the UK continued to make concessions on its Brexit plan.
As UK Prime Minister Theresa May’s latest comments indicated the UK would hold its ground on its plan, concerns of disagreements in UK-EU Brexit talks worsened again.
Brexit uncertainties are likely to remain in focus for Pound (GBP) investors, whereas US Dollar (USD) investors will be paying attention to ISM’s US manufacturing PMI on Tuesday.
Pound to US Dollar (GBP/USD) Exchange Rate Falls Further on UK Manufacturing Disappointment
UPDATE: As investors bailed out of the Pound (GBP) on Brexit uncertainties on Monday morning, the Pound to US Dollar (GBP/USD) exchange rate’s losses were extended following the publication of August’s UK manufacturing PMI.
Markit’s August PMI report was forecast to have come in at 53.8, but instead slumped to 52.8.
This was the worst level for the print in over two years, and indicated that both Brexit uncertainties and concerns about US trade protectionism were having a negative effect on UK business activity.
At the time of writing, GBP/USD had slipped to the interbank region of $1.28.
Pound to US Dollar (GBP/USD) Exchange Rate Gives Up Gains as ‘Safe Haven’ Demand Rises
The Pound Sterling to US Dollar (GBP/USD) recovery rally may already have been cut short as uncertainties about the Brexit process have reared up again, and the US Dollar (USD) furthermore benefitting from market demand for safe haven currencies.
Due to a brief spike in Brexit optimism, GBP/USD jumped over a cent last week – from the interbank level of $1.28 to around $1.29. However, GBP/USD has proved unable to hold the week’s 3-week-highs of over $1.30.
When markets opened on Monday, GBP/USD slipped back to around $1.29 and could be on track to fall further if Brexit uncertainties worsen again.
Disagreements between EU Chief Negotiator Michel Barnier and UK Prime Minister Theresa May have since dampened market demand for the Pound (GBP).
Meanwhile, the US Dollar has climbed again from the end of last week, as concerns about trade wars worsened again.
Pound (GBP) Exchange Rate Bullishness Fades on Fresh Brexit Uncertainties
Last week saw the Pound (GBP) climbing against most major rivals, as EU Chief Negotiator Michel Barnier said the EU was willing to offer the UK a partnership that would be unprecedentedly close for a non-EU nation.
However, the Pound’s (GBP) gains were curtailed when analysts pointed out this would require stronger cooperation between the UK and EU.
Analysts’ uncertainties were justified, as this morning the Pound was knocked lower again by disagreements between Barnier and May.
While the UK PM said she would be steadfast over her Brexit plans, rather than making compromises that would damage the UK’s national interest, Barnier said there were key parts of the plan he could not agree with.
On Sunday, Barnier stated:
‘We have a coherent market for goods, services, capital and people – our own ecosystem that has grown over decades,
You cannot play with it by picking pieces. There is another reason why I strongly oppose the British proposal.’
US Dollar (USD) Exchange Rates Hold up as Global Trade Tensions Worsen
Investors took last week’s trade agreement between the US and Mexico as a brief sign that the perceived US protectionist stance on trade was softening, but later in the week those hopes faded.
As a result, last week’s risk-on movement was limited, and investors are now opting to buy ‘safe haven’ currencies like the US Dollar (USD) again.
US-China trade tensions worsened once more, as President Donald Trump indicated he was ready to impose an additional $200b worth of tariffs on Chinese imports soon.
Alongside renewed concerns about a possible US-China trade war, news that trade negotiations between the US and Canada had fallen through also spooked investors.
With the US appearing to be steadfast in its trade threats, investors are hesitant to take risks. Amid recent data indicating a strong US economic outlook, the US Dollar continues to be the most consistently appealing ‘safe haven’ currency.
Pound to US Dollar (GBP/USD) Forecast: PMI Results Could Support Pound
The Pound to US Dollar (GBP/USD) exchange rate could be in for further falls this week, but so long as there are no more concerning Brexit developments the Pound (GBP) could find support in upcoming UK PMI stats.
In particular, Wednesday’s UK services and composite PMI results from August could prove influential as services make up the biggest chunk of Britain’s economic activity.
If UK services print better than the expected rise from 53.5 to 53.9, the Pound could see stronger support in the coming week on hopes of continued resilience in Britain’s economy.
However, the Pound could still be in for further falls if perceived Brexit disagreements between the UK and EU, or even within the UK government, appear to worsen.
UK-EU Brexit negotiations are expected to accelerate as negotiators anticipate a major EU summit in October, so the Pound’s primary driver will continue to be Brexit news.
As for the US Dollar (USD), the currency could be influenced by Tuesday’s manufacturing PMI data from ISM, but market risk-sentiment is also likely to remain influential.
Essentially, developments in politics and the threats to the global trade framework are more likely to drive the Pound to US Dollar (GBP/USD) exchange rate this week than UK or US ecostats.