GBP/USD Exchange Rate Tumbles as Brexit Risks Rise
The Pound Sterling to US Dollar (GBP/USD) exchange rate looks to be headed below $1.33 this morning amid rising anxiety that the UK is headed towards a no-deal Brexit.
At the time of writing the GBP/USD exchange rate has fallen 0.4% so far this morning with the pairing striking a low of $1.2329, its worst levels since March 2017.
Pound (GBP) Slides as ‘No Deal now a Very Real Prospect’
The Pound (GBP) is off to a poor start this week following comments made by Michael Gove over the weekend.
Writing in the Sunday Times the newly appointed chancellor of the Duchy of Lancaster, said that while his team still aims to reach a deal with the EU, it is now ‘working on the assumption’ that the UK will exit the EU without a deal.
Hot on the heels of Gove’s remarks have been comments from UK foreign secretary, Dominic Raab, in which he suggested talks with the EU won’t be re-opened until its drops the Irish backstop.
This has exerted a lot of bearish pressure on Sterling this morning, with Boris Johnson’s new cabinet is filled with hardline Brexiteers, thought to be more prepared to pursue a no-deal Brexit.
On top of this there is also the growing speculation that a UK general election could be called within week’s either as a push by MPs opposed to a no-deal Brexit or by Johnson seeking to take advantage of the Conservative’s current lead in the polls to help improve his mandate to deliver Brexit.
US Dollar (USD) Firms Ahead of Fed Policy meeting
Meanwhile, the US Dollar (USD) remains on a bullish run at the start of this week as markets await the Federal Reserve’s policy decision on Wednesday.
While the Federal Open Market Committee (FOMC) is widely expected to vote to cut interest rates following this week’s meeting, the continued momentum in the US economy suggests that there will be little need for further cuts down the road.
Because of this the Fed is expected to signal that this month’s cut will be ‘one and done’, much to the relief of USD investors.
GBP/USD Exchange Rate Forecast: Dovish BoE to Put Further Pressure on Sterling?
The Fed isn’t the only central bank in focus this week however, as markets await the Bank of England’s (BoE) own policy decision on Thursday.
In contrast with the Fed, the BoE is not expected to take any action this week, with the focus instead being on the bank’s forward guidance.
This may put even more pressure on the Pound to US Dollar (GBP/USD) exchange rate however as the BoE is widely expected to strike a dovish tone in response to rising Brexit uncertainty, likely signalling that a no-deal Brexit will result in rates being slashed.
Meanwhile, looking past the Fed meeting, the other major catalyst for USD exchange rates this week will be the publication of the US non-farm payrolls at the end of the session, with an expected slowdown in employment growth likely to dent the US Dollar.