Pound to US Dollar Exchange Rate Volatile as UK-EU Deal Appears to have Been Reached
Investors have been buying the Pound Sterling to US Dollar (GBP/USD) exchange rate this week, on hopes that a fresh Brexit deal can be secured. Even amid speedbumps in Brexit talks, the pair’s losses have been limited due to surprisingly poor US data.
Following last week’s impressive GBP/USD surge from 1.23 to 1.26, GBP/USD has continued to climb this week.
GBP/USD briefly dipped overnight, but at the time of writing was surging again and the interbank rate is currently trending near a new 5-month-high of 1.29.
The Pound to US Dollar exchange rate’s movement today is largely due to mixed news regarding Brexit negotiations, but as the US economic outlook continues to slowly worsen the Pound is avoiding losses against a weaker US Dollar.
Pound (GBP) Exchange Rates Suddenly Rocket; Could Deal Have Been Reached?
For most of the week, the possibility of a fresh UK-EU Brexit deal being reached as soon as the coming weeks has led to strong Pound (GBP) appeal.
UK and EU negotiators showed optimism that a deal is getting closer, which softened no-deal Brexit fears. This has been the primary cause of the Pound’s strong gains since last week.
UK-EU negotiations appeared to hit a new speedbump last night as even though a deal was drawing nearer, Northern Ireland’s DUP Party seemingly rejected the deal. The DUP is a key ally of the UK government.
This uncertainty caused the Pound to tumble overnight, but this is also why the Pound saw fresh gains around the time of writing.
Despite this though, comments from UK Prime Minister Boris Johnson and European Commission President Jean-Claude Juncker announced this morning that a new UK-EU deal had been reached.
🇪🇺🤝🇬🇧 Where there is a will, there is a #deal – we have one! It’s a fair and balanced agreement for the EU and the UK and it is testament to our commitment to find solutions. I recommend that #EUCO endorses this deal. pic.twitter.com/7AfKyCZ6k9
— Jean-Claude Juncker (@JunckerEU) October 17, 2019
US Dollar (USD) Exchange Rates Dampened as US Retail Sales Unexpectedly Contract
The US Dollar (USD) was one of the weaker currencies against the Pound’s (GBP) sharp movements today.
Investors have been hesitant to buy the US Dollar this week amid concerns that US-China trade relations are not improving as much as hoped, leading to fears of lasting US economic woes from the trade war.
The US Dollar came under even further pressure yesterday though, as markets reacted to a surprising contraction in US retail activity.
US retail sales were forecast to grow at 0.3% month-on-month in September, but instead printed losses of -0.3%. Yearly retail sales slowed from 4.4% to 4.1%.
The contraction in US retail sales fuelled fears that the US economy could be headed for recession in the coming years, and boosted Federal Reserve interest rate cut bets.
Pound to US Dollar (GBP/USD) Exchange Rate Could Slump Again if Deal Lacks Domestic Support
While UK and EU officials have announced that a new Brexit deal has been reached, this doesn’t mean it’s clear sailing for the Pound to US Dollar (GBP/USD) exchange rate.
The Pound (GBP) could quickly shed this week’s gains if there is enough speculation suggesting a lack of support for deal in UK Parliament.
Northern Ireland’s DUP Party still appears to oppose the deal, and if the government cannot get it on side, the perceived chances of the deal passing through UK Parliament may remain low.
While markets remain optimistic for now, this could lead to Pound losses in the coming days. Of course, if the UK government is able to get more allies in UK Parliament to support this deal, soft Brexit hopes will rise and Sterling could see even further gains.
The US Dollar, on the other hand, will continue to focus on US data.
US manufacturing and industrial production will be published this afternoon, and statements from Federal Reserve officials over the coming days could also influence the Pound to US Dollar (GBP/USD) exchange rate.