Pound Sterling to US Dollar Exchange Rate Slides on Market Doubts for Brexit Breakthrough

Pound to US Dollar Exchange Rate Slips as US Dollar Firms Ahead of Fed Minutes

The Pound Sterling to US Dollar (GBP/USD) exchange rate jumped yesterday as the Pound (GBP) benefitted from Brexit speculation and weakness in its rivals, but the pair has slipped back today as markets steady positions.

After opening this week at the interbank level of 1.28, GBP/USD spent most of the week trending higher. GBP/USD touched a fortnight high overnight, and while the pair has since slipped from those levels it remains over a cent above the week’s opening levels.

Investors piled into the Pound on Tuesday as markets became hopeful that some kind of breakthrough in UK-EU Brexit talks was possible today, but those hopes have dwindled somewhat and left Sterling unappealing today.

Meanwhile, the US Dollar is steadying as investors anticipate this evening’s Federal Reserve news, though its potential for gains is limited by a risk-on mood in markets.

Pound (GBP) Exchange Rates Slide as Brexit Breakthrough Hopes Perceived as Overly Optimistic

While Britain’s latest job market data on Tuesday was fairly optimistic and showed that the nation’s job market was performing strongly despite Brexit jitters, the primary reason for the Pound’s gains over the past day were hopes for Brexit progress.

UK Prime Minister Theresa May is travelling back to Brussels for another round of UK-EU Brexit negotiations today, and yesterday investors had been hopeful that a breakthrough may even be on the cards.

If the EU were to soften its stance at all and offer the UK government some reassurances, it could bolster the government’s Brexit deal and make it more likely to pass through Parliament.

However, analysts expressed caution about being too optimistic about today’s meetings. According to Marshal Gittler, ACLS Global Chief Strategist:

‘In my view, I think they [the EU] could tinker with the language [of the deal] a bit, but whether it would be enough to convince 51 percent of MPs to vote for it is dubious,

Personally I’d go short on the Pound if I were taking a position,’

US Dollar (USD) Exchange Rates Firm in Anticipation of Fed Minutes

The Pound (GBP) was more easily able to gain against the US Dollar (USD) yesterday, as risk-on mood in markets made investors sell the US currency.

Trade negotiations between the US and China are continuing this week, and thanks to optimistic comments and signs from officials analysts are also becoming more confident that a deal could be in sight.

After US-China trade tensions dominated headlines for much of the past year, signs of a trade deal being possible over the next month or so have cooled market trade fears and made investors much more willing to take risks again.

As the US Dollar is a safe haven currency that benefits from market uncertainty, the rise in risk-sentiment left the US Dollar weaker.

Still, investors were hesitant to sell the US currency too much. The US Dollar firmed a little today as investors anticipated the Federal Reserve’s latest meeting minutes report.

Pound to US Dollar (GBP/USD) Exchange Rate Could Plunge if Fed Shows Hawkish Signals

The Pound to US Dollar (GBP/USD) exchange rate’s movement today is fairly limited so far, as Pound (GBP) investors become more cautious on Brexit hopes and US Dollar (USD) investors hesitate to move too much on the US currency ahead of Fed news.

This evening, the Federal Reserve will publish its latest meeting minutes report.

As the Fed has shifted towards a more cautious stance since last year, US Dollar investors are anxious to see if the minutes reveal any more detail about whether the Fed is leaning towards hawkish or dovish.

If the Fed hints that a 2019 interest rate hike is still possible despite slowing global growth, the US Dollar could see stronger demand and push GBP/USD lower.

Of course, any surprising Brexit developments today could be even more influential for GBP/USD.

If there really is some kind of breakthrough in talks, the Pound to US Dollar (GBP/USD) exchange rate could surge as soft Brexit hopes would rise.

Josh Jeffery

Contact Josh Jeffery