Pound Sterling to US Dollar Exchange Rate Fluctuates on Brexit and US-China Uncertainties

Pound to US Dollar Exchange Rate Edges Away from Yearly Lows as USD Strength is Limited

UPDATE: After hitting its worst levels since mid-2017 earlier in the week, the Pound Sterling to US Dollar (GBP/USD) exchange rate has recovered to around the week’s opening levels.

The Pound (GBP) once again benefitted on Thursday from speculation that bets of a second UK referendum had reached their best levels in quite some time.

Meanwhile, the US Dollar (USD) failed to hold its ground as relations between the US and China appeared to worsen even further.

Investors looking for safe havens found other currencies, like the Japanese Yen (JPY), more appealing.

Pound to US Dollar (GBP/USD) Exchange Rate Recovers to Above Week’s Opening Levels

UPDATE: After trending near its worst 2018 levels this morning, the Pound Sterling to US Dollar (GBP/USD) exchange rate rebounded later in the day thanks to fresh Brexit speculation.

Investors found the Pound (GBP) more appealing amid speculation that Parliament could fight to avoid a ‘no-deal’ Brexit if Theresa May’s agreement fails to pass next week.

Parliament voted for an amendment to take more control of the Brexit process if the negotiated UK-EU deal is blocked.

The Pound’s gains were limited however as US-China trade jitters left safe haven currencies like the US Dollar (USD) more appealing.

Pound to US Dollar (GBP/USD) Exchange Rate Sheds Gains as US-China Trade Truce Optimism Fizzles

A brief surge in demand for the Pound Sterling against the US Dollar (GBP/USD) earlier in the week was short-lived, as Tuesday’s optimistic Brexit speculation was extinguished by Wednesday – and so did the market’s optimism for the announced US-China trade truce.

After opening this week at the interbank level of $1.27, GBP/USD briefly surged over half a cent on Tuesday on Brexit speculation.

However, overnight political uncertainties dragged GBP/USD lower and the pair hit its worst levels since June 2017. GBP/USD had rebounded slightly from those lows at the time of writing.

Fresh political turmoil in the UK, influenced by news that the UK government was being held in contempt of Parliament for not publishing Brexit legal advice, caused Sterling (GBP) to tumble. The US Dollar (USD) climbed on renewed demand for safe haven currencies.

Pound (GBP) Exchange Rates Shed Gains on Fresh Brexit Uncertainties

There may be even further complications to the Brexit process than previously expected, as fresh uncertainties left the Pound (GBP) looking unappealing on Wednesday.

A Tuesday evening parliamentary vote saw MPs vote to have the UK government held in contempt for refusing to publish its full legal advice on the agreed UK-EU Brexit plan.

This worsened market concerns about the stability of the UK government and its ability to navigate through the historic Brexit process, particularly as the process reaches such a critical point.

Sterling did recover slightly following a second vote however. Parliament voted in favour of an amendment that would give it greater power if Theresa May’s Brexit deal is voted down in next week.

Britain’s November services PMI from Markit didn’t have a significant impact on the Sterling outlook. However, news that services fell to just 50.4, just above the 50 point between contraction and growth, was unlikely to give Pound investors much to be optimistic about.

US Dollar (USD) More Appealing as Trade War Jitters Rise

When markets opened this week, investors sold the safe haven US Dollar (USD) in favour of riskier currencies amid expectations that the US and China would avoid an escalation of trade tariffs after an announced 90-day truce.

The news briefly calmed market fears and made investors less hesitant to take risks. However, that optimism may have been short-lived.

On Tuesday evening, US President Donald Trump once again took aim at China with fiery some rhetoric, threatening more tariffs if China did not offer concessions. As a result of his tweet, much of the risk-on movement seen this week so far was reversed.

According to Fiona Cincotta from City Index:

‘It was good while it lasted. The rally Monday on the back of the respite in the China-US trade war came to a crashing halt today after President Trump raised doubts that the two countries will be able to find middle ground by the 90-day deadline they have put in place this weekend.’

Pound to US Dollar (GBP/USD) Exchange Rate Could Recover if Upcoming US Data Disappoints

The US Dollar (USD) outlook still isn’t particularly strong this week, as despite the lasting demand for safe haven currencies markets are still speculating about a slowdown in US economic growth in the coming year.

Long-dated US Treasury yields have been falling and Federal Reserve interest rate hike bets have fallen too, indicating that investors are becoming more bearish about the US economic outlook.

As a result, the US Dollar’s strength is limited and the Pound may be able to more easily recover some of this week’s losses if upcoming US data disappoints investors – or if there are any optimistic Brexit developments.

Thursday will see the publication of US trade balance results from October, as well as US Non-Farm productivity data and non-manufacturing PMI data from ISM. Friday will follow with anticipated US Non-Farm Payroll results from November.

If notable US data falls short of expectations, it could cause speculation that the US economy is already beginning to slow, which would leave the US Dollar weaker, even amid safe haven demand.

This would make it easier for the Pound to US Dollar (GBP/USD) exchange rate to recover further from its worst levels in almost a year and a half.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard