Pound to US Dollar Exchange Rate Hits Fresh Weekly Lows as Brexit Uncertainty Rises
UPDATE: Once again, the UK government’s Brexit plan was defeated on Friday afternoon as Parliament rejected the Withdrawal Agreement by a majority of 58 votes.
The UK is still set to leave the EU on the 12th of April with no deal, which spooked investors and caused the Pound Sterling to US Dollar (GBP/USD) exchange rate to tumble at the time of writing.
However, analysts believe that a further delay to the Brexit process is still likely, which will mean Britain will need to take part in EU elections.
Hopes of a further delay are keeping the Pound (GBP) from a deeper plummet.
Pound to US Dollar Exchange Rate Hits Multi-Week-Lows on Brexit Jitters and USD Rebound
Despite mounting Federal Reserve interest rate cut bets, the US Dollar (USD) was able to keep climbing versus an unappealing Pound (GBP) this morning with the Pound to US Dollar (GBP/USD) exchange rate hitting its worst levels in over two weeks.
After opening this week at the level of $1.32, GBP/USD held its ground for the first half of the week before sliding on Brexit jitters and a resurgent US Dollar.
At the time of writing on Friday morning, GBP/USD was trending close to its worst levels in over two weeks and is on track to have shed almost two cents this week overall.
Investors continued to sell the Pound on fears that the Brexit process could end in either a no-deal Brexit or a continued period of uncertainty, as analysts doubted that the government’s Brexit plan would be able to succeed.
Pound (GBP) Exchange Rates Slumping as Brexit Uncertainties Mount
Mixed views from officials and economists on how the Brexit process could turn out are leaving the Pound (GBP) unappealing at the end of the week, as uncertainties rise with just two weeks to go until the next Brexit date.
Today was originally set to be the day Britain leaves the EU, but amid a lack of agreement in Parliament over how Brexit should unfold the process has been formally delayed by the EU until the 12th of April.
Uncertainties over how Brexit could unfold continue to dominate Pound movement, with investors looking for signs as to whether a no-deal Brexit is more likely or if the UK will move towards a softer Brexit.
EU diplomats reportedly see the chances of a no-deal Brexit as being higher than ever, but other analysts predict that if the government’s withdrawal deal is blocked it will increase the chances of a softer Brexit.
The government will attempt to push its soft withdrawal agreement through Parliament today, but analysts at Goldman Sachs believe that the Brexit process will be extended for a long period and may be renegotiated if the deal is defeated.
US Dollar (USD) Exchange Rates Bounce despite Federal Reserve Jitters
Broad weakness in US Dollar (USD) rivals, including the Pound (GBP) as well as the Euro (EUR) among others, helped the currency to rebound from its recent lows towards the end of the week.
Despite the dovish tone taken by the Federal Reserve recently, as well as slowing US growth and more bets that the Fed could cut US interest rates at some point this year, the US Dollar has bounced.
Other major central banks, such as the Reserve Bank of New Zealand (RBNZ), have taken more dovish tones too. This has made investors hesitant to take risks, instead opting for safe haven currencies like the US Dollar.
On top of weakness in rivals, the US Dollar has benefitted from a rebound in US Treasury bond yields, which were worryingly low at the beginning of the week.
According to Yukio Ishizuki from Daiwa Securities:
‘Though US yields have dropped, investors seem to have sold currencies from markets about which they have the biggest worries about the state of the economy. That seems to have lifted the Dollar,’
Pound to US Dollar (GBP/USD) Exchange Rate to be driven by Fate of Government’s Brexit Plan
The UK government plans to hold a vote on only the Withdrawal Agreement part of its Brexit deal today, rather than a meaningful vote on both the Withdrawal Agreement and Political Declaration, as both previous attempts had been.
This is in order to get around a rule enforced by House Speaker John Bercow, that multiple votes on the same issue without changes are disallowed.
Markets doubt that the plan will pass this time either, as backbenchers in the Conservative government, most of Northern Ireland’s DUP MPs, and a large majority of the opposition Labour Party are still opposed to the deal.
If the deal fails to pass, it could mark the end for the government’s Brexit deal, as well as mean the Brexit process could either end in a no-deal Brexit or see an even longer delay that would mean Britain taking place in EU elections.
If the deal succeeds though, the Pound (GBP) could surge as it would confirm a soft Brexit – though uncertainty about a potential UK leadership contest would persist and keep pressure on the Pound.
The US Dollar’s (USD) late-week movement will be comparatively simpler. Upcoming US Personal Consumption Expenditure (PCE) data could also influence the Pound to US Dollar (GBP/USD) exchange rate before markets close for the week.