GBP/USD Exchange Rate Holds Modest Gains as Empire State Manufacturing Data Slumps

Pound to US Dollar Exchange Rate Benefits from Fed Speculation and US Data

UPDATE: While the primary cause of Monday’s Pound Sterling to US Dollar (GBP/USD) exchange rate gains was market concerns of a potentially dovish Federal Reserve, the latest US data also weakened the US Dollar (USD).

The US Empire State manufacturing index was forecast to slip to 20, but instead fell from 23.3 to just 10.90.

December’s US housing market index from NAHB was disappointing too, slipping from 60 to 56 rather than climbing to 61 as expected.

Pound to US Dollar Exchange Rate Benefits from Speculation that Brexit Could Be Delayed

UPDATE: Despite a lack of clarity on how the Brexit process will unfold, the Pound Sterling to US Dollar (GBP/USD) exchange rate is still edging higher.

Rising market bets that the UK government will be pressured to delay the Brexit process left Sterling (GBP) slightly more appealing.

The US Dollar (USD), on the other hand, has been less appealing amid market concerns that the Federal Reserve will be more dovish in its upcoming policy decision on Wednesday.

US President Donald Trump took aim at the Fed on Monday, arguing in a tweet that the central bank should not hike US interest rates. This weighed on the US Dollar as well.

Pound to US Dollar (GBP/USD) Exchange Rate Fails to Recover Further with Brexit Uncertainties Deepening

A combination of worsening Brexit uncertainties, as well as a brief boost in market demand for safe haven currencies like the US Dollar (USD), caused the Pound Sterling to US Dollar (GBP/USD) exchange rate to fall last week.

GBP/USD ultimately shed over a cent throughout the week, with the inter-bank rate even touching a 2018 low on Wednesday due to Brexit jitters, before recovering slightly.

At the time of writing on Monday, GBP/USD was still trending over a cent below last week’s opening levels.

As the US Dollar slipped back slightly from the rally it saw late last week, the Pound to US Dollar exchange rate saw a slight rebound on Monday morning.

Investors are hesitant to move too much on the Pound (GBP) or US Dollar though, amid pervasive Brexit jitters and anticipation for this week’s upcoming central bank meetings.

Pound (GBP) Rangebound as UK Prime Minister Rules out ‘Irreparable Damage’ of Second Referendum

There is still broad disagreement among UK politicians regarding how the Brexit process should proceed.

Prime Minister Theresa May’s withdrawal deal lacks the support to pass through Parliament, and politicians are now struggling to agree to an alternative that could help Britain to get a trade deal with the EU.

Calls are growing for a second EU referendum to be held – a so-called ‘people’s vote’.

However, the UK government has criticised this idea with Theresa May expected to tell Parliament that a second referendum would ‘break faith with the British people.’

She is expected to say in a speech to Parliament:

‘Another vote which would do irreparable damage to the integrity of our politics, because it would say to millions who trusted in democracy, that our democracy does not deliver.’

US Dollar (USD) Exchange Rates Slip as Investors Anticipate Federal Reserve Meeting

Last week, demand for the US Dollar (USD) briefly surged as investors reacted to fresh data pointing towards slowing global growth.

Data from China, the world’s second biggest economy, as well as the Eurozone, printed well below expectations towards the end of last week. As a result, investors found the safe haven US Dollar much more appealing.

Some solid US retail and production stats also supported the US currency towards the end of the week.

The US Dollar’s late-week rally however was limited by lingering market demand for riskier currencies for most of last week, as US-China trade tensions lessened.

Demand for the US Dollar has also been limited by concerns that the Federal Reserve will take a more cautious tone on US monetary policy next year, amid rising speculation that growth is slowing too.

Pound to US Dollar (GBP/USD) Exchange Rate May Climb if Federal Reserve Disappoints

As much of the US Dollar’s (USD) recent weakness has been due to market speculation that the Federal Reserve’s hawkishness is fading, or that the Fed could become more hawkish next year, investors are nevertheless anticipating the Fed’s December policy decision.

The central bank is widely expected to hike US interest rates for the fourth time this year during its policy decision on Wednesday, but the biggest market focus will be on the tone it takes regarding its 2019 outlook.

Any signs that the Fed’s interest rate hike cycle is over or will be paused, or any indications that the bank expects US growth to slow, will likely lead to further US Dollar weakness.

This would be the best chance the Pound to US Dollar (GBP/USD) exchange rate has of climbing in the coming week, as Sterling (GBP) is unlikely to rise much without some kind of solid Brexit development.

UK data is unlikely to be hugely influential as economic activity will be heavily impacted by the path Brexit takes in the coming months.

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