Pound to US Dollar Exchange Rate Losses Slow as Mexico Spat Concerns Persist

Pound to US Dollar Exchange Rate on Track to Shed Around Half a Cent Today

UPDATE: The Pound to US Dollar (GBP/USD) exchange rate has shed around a third of last week’s gains already today, as the US Dollar (USD) climbs in reaction to reports that the US and Mexico had agreed to a deal that will prevent the US from implementing fresh tariffs.

However, GBP/USD losses slowed towards the end of Monday’s European session as the US Dollar’s potential for gains was limited.

US President Donald Trump reiterated his threat that if Mexico did not uphold its part of the deal to stem illegal immigration the tariffs could return. This kept the US Dollar under pressure.

Pound to US Dollar (GBP/USD) Exchange Rate Already Sheds a Third of Last Week’s Gains

UPDATE: If the US Dollar (USD) remains appealing in the coming sessions, the Pound to US Dollar (GBP/USD) exchange rate may continue to fall as the UK outlook worsens.

Since this morning’s disappointing UK growth rate report, analysts have continued to express concern about how the economy is being impacted by the long-term uncertainty over Brexit.

Brexit uncertainty is set to persist for at least a couple more months.

According to TUC General Secretary Frances O’Grady:

‘Industry is paying the price for the government’s Brexit chaos.’

Pound to US Dollar (GBP/USD) Exchange Rate Slides on UK Growth Slowdown and Weaker USD

After a brief jump in demand when markets opened this morning, the Pound Sterling to US Dollar (GBP/USD) exchange rate has slipped sharply. This follows last week’s session, which saw the US Dollar (USD) endure broad losses due to Federal Reserve interest rate cut bets.

After opening last week at $1.26, GBP/USD climbed throughout the week, gaining over a cent and closing the week in the region of $1.27.

GBP/USD saw a spike in demand when markets opened this morning. Since then though, a recovering US Dollar and poor UK ecostats have left GBP/USD on a weaker footing.

At the time of writing, the GBP/USD inter-bank rate had fallen below the level of $1.27 again.

While investors are still anxious that the Federal Reserve will cut US interest rates at some point over the next year, the US Dollar has rebounded thanks to developments in US trade tensions, as well as fresh weakness in Sterling (GBP).

Pound (GBP) Exchange Rates Tumble on Surprisingly Weak Production and Growth Figures

The Pound (GBP) failed to hold its ground when markets opened this week. This was partially due to a rebound in US Dollar (USD) demand, but was also a result of this morning’s slew of UK data.

Data including Gross Domestic Product (GDP) growth rates, construction, and production all fell well short of expectations, with some key prints showing contractions.

Most concerning was news that Britain’s monthly growth rate had worsened to -0.4% month-on-month, which was even worse than the expected -0.1%.

In reaction, some analysts argued that the UK economy could shrink in Q2 2019, with others predicting more months of weakness are ahead.

According to Yael Selfin, Chief Economist at KPMG UK:

‘The hangover that’s followed the UK’s original exit date is proving stronger than anticipated. Today’s figures signal the UK economy is likely to experience more subdued growth for the rest of the year, marred by Brexit uncertainty.’

US Dollar (USD) Exchange Rates Rebound as Trade Fears Lessen

For most of last week, investors sold the US Dollar (USD) across the board. Markets became increasingly concerned about worsening US trade tensions, as well as rising bets that the Federal Reserve will cut US interest rates in the next year.

The rise in US interest rate cut expectations was exacerbated by trade tensions, but mostly by recent signs of weakness in US data including inflation and employment stats.

Last Friday’s US Non-Farm Payroll report was particularly disappointing, with many key prints, including job changes and wage growth, falling short.

With the highly influential US print disappointing, Fed rate cut bets rose and the US Dollar saw further losses before markets closed.

The US Dollar has rebounded slightly this week so far, but this has been partially due to fresh hopes that trade tensions between the US and Mexico have diminished.

The US and Mexico reportedly struck a deal to resolve illegal immigration into the US, causing investor sentiment in USD to rise this morning.

Pound to US Dollar (GBP/USD) Exchange Rate Investors Anticipate US Inflation Report

With the UK Conservative Party leadership contest underway and this week’s most influential UK data having fallen well short of expectations, there is not much space for the Pound (GBP) to mount much of a recovery this week.

Sterling will likely remain under pressure and GBP/USD could see further losses, but this will depend mostly on the strength of the US Dollar (USD) in the coming sessions.

The US Dollar could continue to recover on hopes of US trade tensions falling, but gains may be limited due to Federal Reserve interest rate cut expectations.

As a result, investors will be focused on major upcoming US data releases, including inflation data on Wednesday and retail sales on Friday.

If US inflation falls short of expectations again, it would only exacerbate Fed interest rate cut bets. Weak US data would make it easier for GBP/USD to recover.

On the other hand, if US inflation impresses, hopes of economic resilience may rise and the Pound to US Dollar (GBP/USD) exchange rate could be in for fresh losses.

Josh Jeffery

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