GBP/USD Exchange Rate Subdued as Brexit Jitters Rise
The Pound Sterling to US Dollar (GBP/USD) exchange rate is skirting with a one-week low this morning after EU officials rebuffed Boris Johnson’s calls for a new Brexit deal.
At the time of writing the GBP/USD exchange rate is currently edging lower, with the pairing striking a low of $1.2423, having retreated from a high of $1.25 on Thursday.
Pound (GBP) Struggles as No-Deal Risks Rise Under Boris Johnson
The Pound (GBP) is licking its wound this morning, after the UK currency was forced to give up some its recent gains on Thursday.
This came after senior EU officials made it clear that Boris Johnson’s plans drop the Irish backstop from the withdrawal deal was a non-starter.
The EU’s Chief Brexit negotiator Michel Barnier said:
‘PM Johnson has stated that if an agreement is to be reached it goes by way of eliminating the backstop. This is of course unacceptable and not within the mandate of the European council.’
This leaves the Pound on the back foot this morning as the EU’s refusal to budge and Johnson’s commitment to leave in October ‘no ifs, no buts’ stokes concerns that the UK will face a no-deal Brexit.
Slowdown in US GDP to Weaken the US Dollar (USD)?
Meanwhile, the US Dollar (USD) looks poised to retreat later this afternoon, following the publication of the latest US GDP figures.
These are expected to report that economic growth in the US slowed from 3.1% to 1.8% in the second quarter as the US-China trade war began to take its toll on the domestic economy.
The slowdown in growth is also likely to stoke expectations for Federal Reserve rate cuts this year, something which will place further pressure on the US Dollar.
GBP/USD Exchange Rate Forecast: Fed Rate Cut Poised to Shake up Currency Markets
Looking past the US GDP release to next week’s session, the main catalyst of movement in the Pound to US Dollar (GBP/USD) exchange rate will undoubtedly be the Fed’s latest policy meeting.
All eyes will be on the Fed next week, as after months of speculation the bank is widely expected to announce its first rate cut in a decade.
While the move has been largely priced in by USD investors already, the move could still prompt some notable volatility in currency markets next week, especially if the Fed’s forward guidance makes some strong hints that more rate cuts may be incoming.
However, the Fed won’t be the only central bank potentially impacting GBP/USD exchange rates next week as the Bank of England (BoE) also delivers its latest rate decision.
While there is unlikely to be any policy changes from the BoE next week, we may see the bank’s forward guidance drag on Sterling.
There has been some increasingly dovish chatter from BoE policymakers in recent weeks, and with the risks of a no-deal Brexit on the rise we expect the outlook from the banks to be broadly dovish intone, with further hints that monetary policy could be eased in the event of a disorderly Brexit.