Pound to US Dollar Exchange Rate Rebound Limited as Safe Haven Demand Persists
While not as appealing as other safe haven currencies like the Japanese Yen (JPY), safe haven demand is supporting the US Dollar (USD) slightly this week so far and the Pound Sterling to US Dollar (GBP/USD) exchange rate’s recovery is limited.
After opening last week at the interbank level of 1.21, GBP/USD spent most of the week fluctuating in a relatively tight region – at least until Friday.
On Friday, a surprisingly poor UK growth report left GBP/USD plunging and the pair closed the week at the level of 1.20.
Then, when markets opened this morning, GBP/USD briefly touched even lower; a new post-referendum worst level.
GBP/USD is currently edging higher, but still remains within the interbank region of 1.20. On top of this, some analysts speculate that GBP/USD could even reach parity in the event of a no-deal Brexit.
Pound (GBP) Exchange Rates Could Plummet Even Lower if No-Deal Brexit Occurs in October
After yet another week of losses on no-deal Brexit and UK economic uncertainties, the Pound (GBP) is currently rebounding from its cheapest levels in a bout of profit taking.
Sterling has attempted a rebound from its worst levels multiple times in recent weeks, but the British currency always ends up falling lower still as Brexit fears persist and worsen.
Today, as always, there has been no sign that Brexit fears could lighten any time soon. The Institute for Government (IFG) think-tank has said that the chances of Parliament being able to block a forced no-deal Brexit are lessening.
With the possibility of a no-deal Brexit worsening, could GBP/USD see parity in the coming year? A few analysts believe it is possible.
According to Rupert Harrison, Fund Manager at BlackRock Inc.:
‘The Pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,
We will see this game of chicken continue through August and that’s likely negative for Sterling,’
US Dollar (USD) Exchange Rate Avoids Bigger Losses amid Safe Haven Demand
The biggest movement in GBP/USD this morning was the Pound’s (GBP) rebound on profit-taking.
However, these gains were not only likely to be temporary on no-deal Brexit fears, but were also limited by the day’s demand for the US Dollar (USD).
As a safe haven currency, the US Dollar (USD) has seen some support from the latest US-China trade war fears.
While fears of the US economy being hit by the trade war have made other safe havens like the Japanese Yen (JPY) more appealing in comparison, fears of a possible currency war have subsided slightly which has bolstered the US Dollar again.
Pound to US Dollar (GBP/USD) Exchange Rate Investors Await US Data
Concerning possibilities including a no-deal Brexit, a UK recession, and even the possibility of GBP/USD parity, are likely to keep pressure on the Pound to US Dollar (GBP/USD) exchange rate outlook.
Investors are unlikely to have much reason to buy the Pound (GBP) higher amid a lack of support, but some upcoming UK data could offer Sterling some support if it beats forecasts.
Tuesday will see the publication of Britain’s latest job market data, followed by inflation data on Wednesday and retail sales stats on Thursday.
Unless the data is particularly strong though, Brexit fears will likely still dominate the Pound outlook. GBP/USD has a better chance of rising if upcoming US data disappoints investors.
Key US inflation data will be published tomorrow, followed by trade data on Wednesday and retail sales and production data on Thursday.
If the US data impresses investors though, the Pound to US Dollar (GBP/USD) exchange rate has even less chance of sustaining any sort of recovery this week as the US Dollar (USD) would keep pushing the pair lower.