Pound Sterling to US Dollar (GBP/USD) Exchange Rate Struggles to Advance Despite US Political Jitters

Pound to US Dollar Exchange Rate Edges from Worst Levels on Renewed US-China Trade Tensions

UPDATE: Investors were cautious on the Pound (GBP) for most of Tuesday’s session as they anticipated Brexit developments in Parliament, but the US Dollar (USD) was unable to capitalise.

The Pound to US Dollar (GBP/USD) exchange rate actually edged higher as investors sold the US Dollar in reaction to the latest US-China trade tensions.

US authorities pressed criminal charges against Huawei, China’s global tech giant. China responded by calling the charges ‘unfair and immoral’.

This made investors anxious that US-China trade tensions would worsen, which dampened US Dollar demand.

Pound to US Dollar (GBP/USD) Exchange Rate Traders Hesitant to Make Big Moves Ahead of Political Developments

UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate remained weak this afternoon, with investors hesitant to move much on Sterling (GBP) ahead of Tuesday’s Brexit debate.

However, the recently unappealing US Dollar (USD) was unable to capitalise on the Pound’s weakness.

While the longest US government partial shutdown in history finally ended over the weekend, it didn’t offer the US Dollar too much support as the latest batch of funding will only last until 15 February.

Pound to US Dollar Exchange Rate Slips Ahead of Tuesday’s Anticipated Brexit Debate

Speculation that UK MPs will work towards preventing a no-deal Brexit kept the Pound Sterling to US Dollar (GBP/USD) exchange rate highly appealing last week, but some analysts are concerned the Pound’s (GBP) rally may have been overdone.

In its biggest weekly gain in months, GBP/USD surged over three cents last week and closed the week near a three-month interbank high of $1.32.

Since markets opened this week, GBP/USD has slipped around -0.2% as investors steady positions ahead of a major Brexit debate expected to take place on Tuesday.

UK Prime Minister Theresa May’s Brexit deal will return to Parliament for a debate and vote tomorrow. The deal is not expected to pass, but MPs have tabled amendments and legislation which could shift the direction of the process if they succeed.

The US Dollar’s (USD) recovery against Sterling this morning has been limited, as hopes for US-China trade developments limited market demand for safe haven currencies.

Pound (GBP) Exchange Rates Slip Back as Brexit Uncertainties Persist

Investors piled into the Pound (GBP) last week, on hopes that UK politicians would work to prevent a no-deal Brexit.

Several MPs indicated they would either table or vote in favour of amendments aimed at helping to bolster the popularity of Prime Minister Theresa May’s Brexit deal, or preventing a no-deal Brexit.

These amendments and legislation are set to be voted on after a debate tomorrow.

Markets became more and more confident that a solution would be found, leading to Sterling’s rally. However, some analysts have argued that markets have become too optimistic about the chances a no-deal Brexit can be avoided.

According to James Athey, Money Manager at Aberdeen Standard Investments in London:

‘In the short term, I see value in selling the Pound versus the Dollar as it’s moved a long way in a short period of time and I think the market has got carried away with the falling probability of no deal,

I don’t agree that Parliament is easily able to prevent no-deal.’

As a result of higher caution ahead of tomorrow’s Brexit debate, the Pound slipped today.

US Dollar (USD) Demand Limited ahead of US-China Talks and Fed Decision

Demand for the US Dollar was limited last week. While US data was strong and there were no US-China trade developments bolstering risk-sentiment, the US currency still tumbled versus a strong Sterling.

Amid concerns that the prolonged US government shutdown may have had a negative impact on the US economy, the US Dollar saw little boost in demand when news was released that the shutdown was resolved.

On top of that, the resolution is only temporary and the US may well be plunged into another government shutdown soon.

Investors continue to have little reason to buy the US currency this week so far. Demand for the currency steadied when markets opened today as investors anticipate major US news expected later in the week.

With US-China trade negotiations set to resume in the coming days and the Federal Reserve due to hold its January policy decision, investors are hesitant to make big moves on the US Dollar.

Pound to US Dollar (GBP/USD) Exchange Rate Traders Await Brexit Debate

This week looks set to be another significant one for the Pound to US Dollar (GBP/USD) exchange rate, and particularly the Pound (GBP).

The rollercoaster of Brexit developments and uncertainties looks unlikely to end any time soon, but the UK is still set to formally leave the EU on the 29 March – just over two months from now.

As a result, if any amendments to delay the formal Brexit date succeed during tomorrow’s parliamentary Brexit debate, no-deal Brexit fears could subside further and the Pound may be in for further gains.

The Brexit debate may be highly influential for the Brexit and Pound outlooks in other ways too, if any amendments bolstering the UK-EU withdrawal deal or regarding a second potential referendum are able to find support.

While Brexit developments will take point in GBP/USD movement this week, upcoming US news and data could influence the US Dollar (USD).

Wednesday will see the Federal Reserve hold its January policy decision. The bank’s tone regarding the US economic outlook will be watched closely, as markets perceived the bank’s tone in December as missing the mark.

Developments in US-China trade negotiations may of course influence the Pound to US Dollar (GBP/USD) exchange rate later in the week.

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