Pound to US Dollar (GBP/USD) Exchange Rate Hits Weekly Low despite Signs of Slowdown in US Economy
UPDATE: Investors continued to sell the Pound to US Dollar (GBP/USD) exchange rate this afternoon, with the US Dollar (USD) continuing to benefit from market aversion to risks despite the latest US data.
Q4’s final US Gross Domestic Product (GDP) growth rate results fell short of projections and slowed to 2.2%, causing concern that the US economy was being hit by slowing global growth.
However, the Pound (GBP) was even weaker due to fresh doubts that the UK government’s Brexit plan would be able to pass through Parliament, and GBP/USD continued to fall on Brexit uncertainty.
Pound to US Dollar (GBP/USD) Exchange Rate Steady despite Investors Seeking Safe Havens
For most of the week so far, demand for the US Dollar (USD) was limited amid a lack of strong domestic support, but today the Pound Sterling to US Dollar (GBP/USD) exchange rate has fallen as investors seek the US Dollar’s safe haven appeal.
Since opening this week at the interbank level of $1.32, GBP/USD has largely trended closely to the week’s opening levels. However, today GBP/USD slipped over half a cent as Pound (GBP) investors became more jittery about the Brexit process.
A lack of a solid plan on Brexit, as well as news that UK Prime Minister Theresa May could resign from her role, left the Pound too risky to keep buying and no-deal Brexit fears returned.
As a result of the latest UK political concerns, investors were more eager to buy safe haven currencies like the US Dollar, despite recent mixed US data.
Pound (GBP) Exchange Rates Tumble as UK Political Uncertainties Pile Up
The EU has already delayed the formal Brexit date until at least 12 April, but even as the original Brexit date of 29 March approaches and with just over two weeks until the new Brexit date, there is still no clarity on how it will proceed.
In fact, it almost appears as though the questions and uncertainties regarding the process are piling up, and yesterday’s UK Parliament ‘indicative votes’ process didn’t offer any fresh clarity either.
Eight amendments were up for debate during the indicative votes process, but none of them passed.
A couple, including an amendment supporting a new customs union, and an amendment for another referendum on any passed deal, found only slightly more support in Parliament than the government’s Brexit bill has typically enjoyed.
The most popular amendments may be re-run on Monday, but as uncertainty over the future of Brexit rises, no-deal Brexit fears return.
Investors are also concerned that Theresa May said she would resign if her Brexit deal passed, in hopes it would inspire some of her critics to vote for the deal.
This only worsened the political uncertainty and put further pressure on Sterling (GBP) today, as May’s deal is perceived as remaining unpopular.
US Dollar (USD) Exchange Rates Benefit from Market Risk Aversion
Despite a lack of notable or strong US ecostats in the last few sessions, the US Dollar (USD) has firmed since yesterday as various factors across the globe have left investors more eager to hold onto safe haven currencies.
As a safe haven currency, the US Dollar often benefits in times of market uncertainty – and Brexit fears are far from being the only uncertainty gripping markets this week.
This week has seen further signs that the global growth slowdown is having a bigger impact than expected. While the slowdown appears to be hitting US economic activity, it has also been noted by central banks.
The Reserve Bank of New Zealand (RBNZ) was the latest major central bank to take a dovish shift this week, indicating that it could cut interest rates sometime soon and making investors more eager to move into safe havens.
Pound to US Dollar (GBP/USD) Exchange Rate Waits for Clarity on Brexit
Will the UK ever get clarity on how Brexit will unfold? With just over two weeks until the EU’s delayed Brexit date of the 12 April no solution to the deadlock is in sight, and so it appears as though uncertainty will persist.
Fears of a no-deal Brexit are returning amid no sign of a solution, and this could lead to further Pound (GBP) losses in the coming sessions.
However, analysts also hope that Parliament will do what it can to prevent that worst-case outcome for Brexit, and this could limit the Pound’s potential for losses. Still, gains may be unlikely unless some way out is found.
The Pound to US Dollar (GBP/USD) exchange rate may also be in for further losses if US Dollar (USD) demand improves on upcoming US data.
This week’s most influential US ecostats will be published today and tomorrow, with particular market focus on Q4’s final US growth rate today, and Personal Consumption Expenditure (PCE) inflation data tomorrow.0
If US growth falls short of expectations or if the Federal Reserve’s preferred inflation reading is much lower than forecast, Fed interest rate cut bets could rise and the Pound to US Dollar (GBP/USD) exchange rate is more likely to recover.