Pound to US Dollar Exchange Rate Rebounds on Optimistic Brexit Talks
A combination of fresh hopes over UK-EU Brexit negotiations, as well as market appetite for risk-taking amid US-China trade talks, pushed the Pound Sterling to US Dollar (GBP/USD) exchange rate to trend around weekly highs today.
After opening this week at the interbank level of 1.23, GBP/USD spent most of the week trending lower amid Brexit uncertainty. It fell into the region of 1.22, before rebounding strongly last night.
This morning, GBP/USD trended near the interbank level of 1.24, which was the best level for the pair in two weeks.
Sterling (GBP) saw a surge in demand on the latest Brexit developments, but uncertainty persists, so some analysts believe these gains may, too, be limited.
Pound (GBP) Exchange Rate Holds Rebound Following Optimistic UK-Ireland Talks
The Pound (GBP) saw poor performance for most of the week, as UK-EU Brexit negotiations were perceived as being on the brink of collapse.
However, attempts to find a new foothold in talks were made yesterday, as UK Prime Minister Boris Johnson and Ireland Leader Leo Varadkar held talks near Birkenhead, England.
The meeting was ultimately perceived as positive, with both parties showing optimism that they could see the path to a Brexit deal, and saying they both still wanted to make a deal. It led to a surge in Pound demand last night.
Sterling saw even further gains this morning, as the optimism of yesterday’s talks was reflected by a slightly more optimistic tone from European Council President Donald Tusk.
The UK has still not come forward with a workable, realistic proposal. But I have received promising signals from Taoiseach @LeoVaradkar that a deal is possible. Even the slightest chance must be used. A no deal #Brexit will never be the choice of the EU.
— Charles Michel (@eucopresident) October 11, 2019
US Dollar (USD) Exchange Rates in the Dust amid Risk-Sentiment Rally
For most of the week, the US Dollar (USD) has seen fairly weak performance due to a combination of both domestic and global factors.
Speculation rises that the Federal Reserve is under pressure to become more dovish and hold off a potential US recession somewhere down the line, and recent US data has not been strong enough to support the US Dollar.
The Fed’s meeting minutes on Wednesday caused interest rate cut bets to rise, though the outlook remains clouded with uncertainties amid the US-China trade war and weak US data.
Speaking of the trade war, the latest developments have also weighed on the US Dollar.
The latest round of US-China trade talks began yesterday, and so far have been perceived as optimistic.
This, combined with Brexit deal hopes, made investors more eager to buy currencies associated with trade and risk. As a result, the safe haven US Dollar hasn’t seen much fresh demand and is weaker today.
Politics Could Overshadow Data for Pound to US Dollar (GBP/USD) Exchange Rate Outlook
Next week is the middle of the month, meaning there will be just about half a month until the current 31st of October Brexit date.
While UK-EU talks took a more optimistic turn towards the end of last week, expectations for a deal to be made in time for the upcoming EU summit are low. Markets generally predict that the process will be delayed.
However, as the UK government has repeatedly said it does not intend on delaying Brexit, this could mean further weeks of uncertainty and volatility lie ahead for the Pound (GBP).
The US Dollar (USD), on the other hand, is likely to continue to react to developments in US-China relations, as well as the ongoing impeachment inquiry into US President Donald Trump.
With these political developments taking so much focus for forex markets, upcoming data may be overlooked unless it is surprising enough to notably impact economic outlooks.
UK job market, inflation and retail sales data, as well as US retail and production data, will be the most important stats on the way for the Pound to US Dollar (GBP/USD) exchange rate next week.