Pound Sterling to US Dollar (GBP/USD) Exchange Rate Slide Continues as US Data Impresses Investors

Pound to US Dollar Exchange Rate Knocked by Strong US Growth Report

UPDATE: Speculation that the Federal Reserve could still hike US interest rates again this year returned today, pushing the Pound Sterling to US Dollar (GBP/USD) exchange rate lower.

Market demand for the US Dollar (USD) rose following the publication of the latest US growth rate report.

US growth was forecast to slow from 3.4% to 2.4% quarter-on-quarter, but came in at a stronger than expected 2.6%.

Pound to US Dollar Exchange Rate Losses Limited amid Mixed US Dollar Strength

UPDATE: Investors were hesitant to sell the Pound Sterling to US Dollar (GBP/USD) exchange rate too far from its best levels today, and the pair only saw modest losses at the time of writing.

While profit taking dragged on the Pound (GBP), market demand for the US Dollar (USD) was limited as well.

Market jitters about a cautious Federal Reserve and a failed summit between the US and North Korea weighed on US Dollar sentiment.

Fresh strength in the Euro (EUR), the US Dollar’s biggest rival, also limited GBP/USD losses today.

Pound to US Dollar (GBP/USD) Exchange Rate drops off Best Levels despite Weaker US Data

While some notably underwhelming US data was published yesterday, the Pound Sterling to US Dollar (GBP/USD) exchange rate was unable to hold its best levels today, with investors selling off the Pound from its highs in profit taking, combined with higher demand for safe havens.

Since opening this week at the interbank level of $1.30, GBP/USD has seen significant gains and has so far sustained most of the advances.

GBP/USD hit its best level since June 2018 yesterday, and is still trending over two cents above the week’s opening levels.

Most of this week’s Pound (GBP) gains so far have been due to hopes that a no-deal Brexit can be avoided, though investors sold the British currency a little from its best levels after such strong gains.

The US Dollar (USD) was more easily able to gain versus Sterling today as investors found safe haven currencies like the US Dollar more appealing due to a rise in the global risk outlook.

Pound (GBP) Exchange Rates Sold in Profit Taking after Days of Gains

Since Tuesday, the Pound (GBP) has seen a surge in demand and has soared against most major currency rivals. This has been due to rising market hopes that a worst-case scenario no-deal Brexit would be avoided.

The UK government announced that if the next parliamentary ‘meaningful vote’ on its Brexit plan fails, it will hold Commons votes on a no-deal Brexit and potentially on a delay to the Brexit process.

As MPs indicated they would act to avoid a no-deal Brexit, fears of this happening have lightened significantly this week.

However, as the Pound’s gains were due more to Brexit hopes than any solid developments, investors sold the British currency from its best levels in profit taking today.

Investors often take profit from a currency’s best levels following a particularly strong rally, so today’s modest selloff is unlikely to reflect a particular aversion to Sterling.

US Dollar (USD) Exchange Rates Benefit from Market Risk-Aversion despite Weak Data

Earlier in the week, investors were more eager to take risks and buy higher-yielding currencies due to hopes for progress in US-China trade talks. This weighed on the strength of safe haven currencies like the US Dollar (USD).

However, since then, risk-sentiment has faded slightly amid fresh geopolitical tensions.

The biggest news was the surprise early failure of the latest US-North Korea summit. US President Donald Trump and North Korea Leader Kim Jong-un walked away from talks after being unable to agree.

North Korea wished for all sanctions to be lifted before it began to denuclearise, which the US disagreed with. As talks have collapsed for now, investors bought the safe haven US Dollar.

Demand for the US Dollar was limited by Wednesday’s US data, which showed factory orders come in lower than expected in December.

Pound to US Dollar (GBP/USD) Exchange Rate Could be in for Further Gains

Despite its slip today, analysts predict the Pound (GBP) still has further to climb on Brexit hopes.

Analysts at Goldman Sachs, for example, speculate that as hedges against the Pound continue to unwind, the currency will climb further.

Still, the Pound to US Dollar (GBP/USD) exchange rate may struggle to hold its best levels if upcoming key US data impresses investors and leads to higher demand for the US Dollar (USD).

US growth rate stats will be published this afternoon and could bolster the US Dollar if they impress. Tomorrow’s US Personal Consumption Expenditure (PCE) stats and manufacturing PMI figures may also be influential.

If the stats disappoint investors though, the US economy outlook could weaken and GBP/USD may see further gains.

Friday will also see the publication of Britain’s manufacturing PMI for February, which could offer the Pound to US Dollar (GBP/USD) exchange rate more solid support if it impresses.

Josh Jeffery

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