Recoil Following Week of Surges for Pound Sterling to US Dollar (GBP/USD) Exchange Rate

Pound to US Dollar Exchange Rate Slides Back After Last Week’s Strong Performance

Amid a lack of new strong UK data or fresh Brexit optimism over the weekend, the Pound Sterling to US Dollar (GBP/USD) exchange rate tumbled when markets opened today. Investors sold the Pound (GBP) from weekend highs following last week’s surges.

Last week was a highly bullish one for the Pound and it saw particularly strong advances against a mixed US Dollar (USD).

GBP/USD opened last week at the interbank level of 1.22, but then continued to recover from the decade-worst-levels of 1.19 seen at the beginning of September.

Over the course of last week, GBP/USD sustained over two cents in gains and the pair closed the week at the interbank level of 1.25. GBP/USD has already slipped back down to the level of 1.24 since markets opened this morning.

Pound (GBP) Exchange Rates Tumble Back from Friday Best

On Friday, Pound Sterling (GBP) rounded off the week with an impressive rally, skyrocketing against many major rivals including the US Dollar (USD).

Investors had bought the Pound earlier in the week thanks to news that Britain was unlikely to see an imminent recession, but its Friday surge was due to fresh hopes that the UK government could avoid a no-deal Brexit.

Amid fresh speculation that the government as well as the allied DUP Party could be prepared to soften their positions on Brexit, the Pound soared as soft Brexit hopes rose.

However, fears that a no-deal Brexit was still possible remained, with the current Brexit date only a month and a half away and no solution to the process found yet.

Investors sold the Pound back from its best levels in profit-taking this morning, and persisting Brexit fears only deepened those losses.

US Dollar (USD) Exchange Rates Supported by US Data and Safe Haven Demand

Last week saw the publication of some stronger than expected US data, but at the time this was not enough to help the US Dollar (USD) to avoid losses against a surging Pound (GBP).

Market sentiment to those US ecostats lasted through the weekend though. On Monday morning, the US Dollar was climbing against some rivals and this was partially due to Friday’s stronger than expected US retail sales results.

The biggest news for financial markets this morning however, was news of a shock drone attack on the world’s biggest petroleum processing facility.

The Aramco-operated facility in Saudi Arabia accounts for around 50% of Saudi Arabia’s oil production; around 5% of the world’s oil supply. The news, combined with accompanying geopolitical tensions, caused oil prices to soar and markets to panic.

The US Dollar is a safe haven currency which is appealing in times of geopolitical uncertainty. This helped it to gain against Sterling today, though the currency weakened against other safe havens and oil-correlated currencies.

Pound to US Dollar (GBP/USD) Exchange Rate Investors Await Central Bank Decisions

With the Pound to US Dollar (GBP/USD) exchange rate recoiling from last week’s strong movements and still overshadowed by Brexit jitters, investors are now awaiting more influential news.

Some notable UK and US ecostats will be published in the coming days, including US manufacturing and production stats over the next couple days, and UK inflation data on Wednesday.

However, the week’s most influential news will be on Wednesday and Thursday, when the Federal Reserve and Bank of England (BoE) will hold their September policy decisions.

The Federal Reserve’s September decision is likely to be particularly influential.

The bank is currently expected to cut US interest rates to 2.0%, but if the bank also becomes notably more dovish on the US economy or monetary policy outlook the US Dollar (USD) could be in for losses.

The Bank of England, on the other hand, is unlikely to be hugely influential to Pound to US Dollar (GBP/USD) exchange rate outlook unless it shows a surprise shift in tone, and Pound (GBP) investors will remain focused on Brexit news.

Josh Jeffery

Contact Josh Jeffery


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