Pound to US Dollar Exchange Rate Climbs as IMF Calls US Dollar Overvalued
Due to worsening fears of a potential no-deal Brexit and the US Dollar’s (USD) rebound from last week’s lows, the Pound Sterling to US Dollar (GBP/USD) exchange rate has slumped this week. The pair has been mounting a modest recovery since yesterday however.
Federal Reserve interest rate cut bets helped GBP/USD to advance slightly last week and close near the interbank level of 1.25. Since then though, the pair has tumbled.
At the time of writing, GBP/USD was trending near the interbank level of 1.24, after recovering from yesterday’s low of 1.23. Yesterday’s low was also the worst GBP/USD level in almost two and a half years, since February 2017.
There are concerns that the Pound (GBP) could fall further in the coming weeks and months on upcoming political and Brexit developments, but upcoming US confidence data may prove influential as well.
Pound (GBP) Exchange Rate Edges Away from Worst Levels in Brief Reprieve
Investors bought the Pound (GBP) back from its cheapest levels in profit-taking this morning, after the British currency saw its worst lows all year against many major currency rivals.
The Pound’s rebound versus the US Dollar (USD) was a little stronger, due to the US Dollar’s own weakness and the fact the pair had recently hit its worst levels in over two years.
Overall though, the Pound remains unappealing and is becoming more and more volatile.
Sterling has plummeted this week as investors price in the rising perceived possibility of a worst-case scenario no-deal Brexit.
Boris Johnson, the frontrunner to be Britain’s next Prime Minister, has indicated that he will not accept any Brexit deal that includes the controversial Irish backstop.
There are also rumours that he could close Parliament in order to prevent no-deal Brexit from being blocked.
These factors have caused Pound investors to panic over how Brexit could unfold and the British currency has seen significant losses.
US Dollar (USD) Exchange Rates Slide as Recovery Rally Runs Out of Steam
At the beginning of the week, investors piled into the US Dollar (USD), buying it back from its cheapest levels after it was throttled by Federal Reserve interest rate cut bets last week.
The US Dollar’s brief recovery rally was supported by some key US data, such as retail sales stats published on Tuesday. The data helped to offset concerns about how aggressive the Federal Reserve’s easing would be.
However, this week’s other US data has continued the trend of being weak or falling short of expectations.
Yesterday’s US housing starts and building permits stats, for example, printed unexpectedly deep contractions month-on-month.
These figures, as well as fresh comments from the International Monetary Fund (IMF) suggesting that the US Dollar was still overvalued after its strong performance last year, put a stop to the US Dollar’s recovery.
Pound to US Dollar (GBP/USD) Exchange Rate Investors Await Political Developments
For now, the Pound to US Dollar (GBP/USD) exchange rate is rebounding from its worst levels, but its potential for gains is likely to be limited amid a lack of support for Sterling (GBP).
Analysts expect more sudden, sharp movements from Sterling as UK politics and Brexit develop. These factors are likely to remain a big focus for GBP/USD in the coming days, as the final days of the Conservative Party leadership contest unfold.
As Boris Johnson is widely expected to win the contest, any notable developments on his Brexit stances could prove highly influential for the Pound.
The upcoming US economic calendar will be a little quieter and UK politics will be the focus. However, Friday’s US Michigan university consumer sentiment data could still cause some movement if it surprises.
Any US data or news that influences Federal Reserve interest rate cut bets or Brexit news is especially likely to influence the Pound to US Dollar (GBP/USD) exchange rate.