GBP/USD Continues gains into Tuesday
UPDATE: Despite the UK’s opposition Labour Party saying they would oppose Theresa May’s Brexit plans if they didn’t meet a number of criteria, traders have continued to buy into the Pound, shrugging off any concerns they may have.
On the other side of the pairing, USD traders are awaiting tomorrow’s interest rate decision from the Fed, with a 0.25% increase being the consensus expectation.
Markets still have one eye on the tensions between the US and China over trade policy, with any flare up liable to have a downside effect on USD rates.
Pound up 0.6% Against US Dollar After Brexit Secretary Calms Investors
UPDATE: The Pound is continuing to fight back against the US Dollar and most other peers today after its sharp losses on Friday. Investors have been reassured form some soothing words from Brexit Secretary Dominic Raab, who denied there would be an election any time soon and said the government was still working on a Brexit deal.
Analysts, however, are not convince that the feel-good factor will last long, with today’s CBI Industrial Trends survey coming in below expectations.
GBP/USD Suffers Sharp Selloff as Theresa May’s Brexit Plans Crumble
The Pound (GBP) was left reeling at the end of last week, falling some 1.5% against the US Dollar (USD) as traders reacted to EU leaders’ vote of no confidence in Theresa May’s so-called Chequers plan.
By Friday afternoon the Pound had fallen by around 1.5% against USD prompting Theresa May to hold a televised live address from Downing Street in which she gave an impassioned appeal for the EU to ‘show the UK respect’ and confirmed that Brexit negotiations were ongoing.
The UK prime minister did, however, state that ‘no deal is better than a bad deal’, which spooked traders and caused a further selloff of Sterling against the US Dollar, leaving the pairing down around 1.5% by the end of the trading day – it’s greatest fall so far in 2018.
Today, the Pound is staging something of a comeback and is up 0.5% against the US Dollar to trade at an inter-bank rate of $1.313 after Brexit Secretary Dominic Raab rejected rumours that there would be a general election this autumn following Theresa May’s ‘humiliation’ at the Salzburg EU summit last week.
Speaking to the media, Raab also stated that despite last week’s setbacks he was still optimistic about securing a Brexit agreement with the EU. He said:
‘We keep on negotiating in good faith, we try and get the best deal we can, but we are ready for all eventualities. I’m confident we’ll get there.’
USD Under Pressure as Bond Market Rout Drives Traders into Higher Yielding Currencies
Earlier in the week USD/GBP had suffered a substantial fall sparked by some comments to the effect that the country would seek to retaliate against Washington’s latest round of trade tariffs by opening up their markets to America’s competitors.
Happening on Thursday, this saw traders sell their US Treasuries en masse, leading to a substantial weakening of USD across the board.
At the same time, markets interpreted this signal as a lessening of global trade disruption, causing investors to buy into commodity and trade correlated currencies such as the Australian Dollar (AUD) and South African Rand (ZAR), as well as GBP.
These GBP gains proved to be short lived, however, with the Pound relinquishing them on Friday due to resurgent ‘no-deal’ Brexit fears following Theresa May’s press conference.
Markets Look towards the Federal Reserve on Rate Hike Expectations but no Major Fluctuations for GBP/USD Exchange Rate are Forecast
This week is a quiet one for UK data releases, with the main economic event for the GBP/USD pairing being Wednesday’s Federal Reserve policy meeting. Policymakers are expected to raise US interest rates for the third time this year at the meeting, but this likelihood has already been priced in by the markets and is unlikely to have a profound effect on the GBP/USD exchange rate.
Instead, traders will be scrutinising the accompanying policy statement, with any sign of a hawkish outlook from the Fed liable to boost USD.
A day later, on Thursday, US core personal consumption figures are due to be released, with an expected uptick from 2.0% to 2.2% likely to foster further confidence in the US economy and give USD a lift.
At the end of the week some UK GDP figures could give GBP/USD a boost on Friday if they print in line with expectations. Economists currently forecast finalised Q2 GDP to print at an annualised rate of 1.3% and quarter-on-quarter growth at 0.4%. This would represent a continuation of solid, if not overly-impressive rates of growth, which would nevertheless be seen as pound-positive by traders.
On the whole however, due to a lack of major market-moving data releases this week, we are liable to see the GBP/USD pairing influenced by political developments rather than economic, with Brexit news – as ever – likely to be the main driver.