Trump’s Trade Tirade Fails to Boost Pound Sterling to US Dollar (GBP/USD) Exchange Rate Rebound

Pound to US Dollar Exchange Rate near Two Year Worst amid Brexit Jitters

Continued fear over how the Brexit process will conclude under Britain’s new Boris Johnson government has kept the Pound Sterling to US Dollar (GBP/USD) exchange rate near its worst levels in two years this week, despite fresh trade jitters weighing on the US Dollar (USD).

GBP/USD is on track to have seen significant losses this week. Since opening the week at the interbank level of 1.23, GBP/USD has shed over two cents.

Yesterday, GBP/USD even trended close to a low of 1.20 which was the worst level for the pair since the beginning of 2017. GBP/USD still trends closely to this two and a half year low, near the interbank level of 1.21.

Looking ahead, the Pound to US Dollar exchange rate may struggle to recover without optimistic Brexit developments unless this evening’s or next week’s upcoming major US data disappoint investors.

Pound (GBP) Exchange Rates Under Pressure Following Cautious Bank of England (BoE)

No-deal Brexit fears still dominate the Pound (GBP) outlook, and also played a part in the Bank of England’s (BoE) cautious tone yesterday.

As expected the bank left UK monetary policy frozen. However, the bank also said that Brexit uncertainty was causing weaker economic activity, and cut its UK growth forecasts.

The bank now expects just 1.3% growth in 2019 and 2020, even in the event of a Brexit deal, due largely to this uncertainty.

As the bank’s economic outlook has worsened and no-deal Brexit fears continue to rise as well, the Pound has been kept near its worst levels. According to Roger Hallam, Currency Chief Investment Officer at JP Morgan:

‘Sterling remains vulnerable to a further escalation in Brexit tensions and we anticipate the market will likely discount higher risks of a ‘no deal’ outcome in the weeks ahead,’

US Dollar (USD) Exchange Rate Rally Stopped Short by US-China Trade Jitters

The US Dollar’s (USD) performance has been stronger this week, as Federal Reserve interest rate cut bets lightened and the Fed itself took a more hawkish than expected tone in its Wednesday policy decision.

However, following some disappointing US manufacturing data yesterday, as well as the latest comments from US President Donald Trump, the US Dollar’s appeal has fizzled out for now.

Thursday evening saw the publication of ISM’s July manufacturing PMI, which was forecast to edge higher to 52.0 but instead tumbled to just 51.2.

US President Trump caused US-China trade tensions to flare up again overnight, as he said the US would impose a 10% tariff on $300b worth of Chinese imports from the 1st of September.

A trade truce that was agreed at the G20 Summit at the end of June appears to have been short-lived. Trump announced the new tariffs after disappointment in the latest phase of US-China trade talks.

The US Dollar rally came to a halt, but the currency’s downside potential was limited so GBP/USD continued to trend near its worst levels.

Pound to US Dollar (GBP/USD) Exchange Rate Anticipates US Non-Farm Payrolls and Growth

The Pound to US Dollar (GBP/USD) exchange rate is on track to see significant losses this week overall, but the pair has a chance of recovering if this afternoon’s key US data disappoints investors.

Major US data, including June trade balance, June factory orders, July Michigan consumer sentiment and of course July’s Non-Farm Payroll report, will be published during today’s American session.

In particular, the Non-Farm Payroll report could be influential for the US Dollar outlook as the Federal Reserve pays close attention to these US jobs figures.

If the data beats forecasts, investors will become more confident about the Fed’s lack of dovishness this week and GBP/USD could fall lower. On the other hand, GBP/USD’s best chance of seeing some late-week recovery would be if this US data disappoints.

Sterling (GBP) movement will be driven by potential Brexit developments, at least ahead of next Monday’s UK services PMI.

In terms of next week’s data though, next Friday’s US growth rate report will be the most anticipated print for Pound to US Dollar (GBP/USD) exchange rate investors.

Josh Jeffery

Contact Josh Jeffery