GBP/USD Exchange Rate still Volatile but Attempts Recovery after Last Week’s Politics Driven Carnage
The Pound US Dollar (GBP/USD) Exchange Rate was hit by a wave of Brexit related volatility last week, falling over 2 cents on Thursday alone in reaction to the unveiling of UK Prime Minister Theresa May’s Brexit agreement.
Both Brexit Secretary Dominic Raab and Work and Pensions Secretary Esther McVey quit in protest at the deal, which Raab said would ‘threaten the integrity of the UK’.
In fact, Thursday turned into one of Sterling’s worst days in years – with the Pound to US Dollar exchange rate sinking.
Furthermore, fears that Theresa May could face a leadership challenge also added to anxieties that the negotiated deal, which took over a year to reach, was likely to fail in Parliament.
Nevertheless, despite benefiting from the Pound’s weakness, demand for the safe haven US Dollar was dampened somewhat by signs that the US and China were hoping to up the pace of trade negotiations.
This had the effect of reducing global risk sentiment and diverting trades away from USD.
US data was generally solid throughout the week, but as it had little impact on the already strong outlook for the US economy it didn’t do much to help keep the US Dollar buoyant.
US Dollar (USD) Exchange Rates Weaken in Wake of Fed Comments and Industrial Production Figures
Following the carnage on Thursday, the US Dollar Pound (USD/GBP) exchange rate was put under pressure from a resurgent Pound at the very end of last week.
Investors were left unimpressed with the ‘Greenback’ following some dovish comments from Federal Reserve Vice Chair Richard Clarida, in which he said that US interest rates were now ‘in the vicinity’ of neutral.
‘Neutral’ interest rates would imply that they have reached a parity with inflation, meaning that any further rate hikes will begin to bite into US consumers’ spending power.
Adding further pressure to USD was the release of the latest US industrial production figures, which revealed that output had slowed faster than expected in October.
GBP/USD Exchange Rate Forecast: Brexit Retains Explosive Potential for GBP
Looking ahead, Brexit is almost certain to remain the main driver for the Pound US Dollar (GBP/USD) exchange rate over the next week.
While the UK political turmoil seen last week has subsided for now, Theresa May is still facing a potential no-confidence vote this week from some of her own Conservative MPs who are looking to gather enough letters of support needed to trigger a vote.
Even if they fail in their efforts to topple her, Sterling still faces a number of hurdles with the main one being that Theresa May is likely to struggle to get her draft Brexit agreement through Parliament.
In terms of data, this week remains a quiet one, although Dollar investors will be looking to Wednesday’s durable goods orders and existing home sales data for guidance.
Before then, GBP traders will be listening closely to Bank of England Governor Mark Carney when he speaks tomorrow morning to see if there is any mention of last week’s Brexit chaos and how it might affect the path of UK interest rate rises in 2019.