Pound US Dollar Exchange Rate Extends Rally on Persistent USD Weakness

GBP/USD Exchange Rate Strikes New One-Week High

The Pound Sterling to US Dollar (GBP/USD) exchange rate continues to accelerate this morning, as Friday’s USD sell-off persisted into the new week.

At the time of writing the GBP/USD exchange rate is trading at around $1.3116, up around 0.3% from this morning’s opening levels.

US Dollar (USD) Undermined by Risk Appetite

The US Dollar (USD) opens this week’s session on the back foot, following on from the sharp sell-off of the ‘Greenback’ at the end of last week.

This slump in USD comes as demand for the safe-haven currency is dented by rising global optimism, mostly surrounding US-China trade.

Investors are hopeful that US President Donald Trump and his Chinese counterpart Xi Jinping will meet in January to sign a phase one trade deal after the announcement that the two powers had reached an agreement earlier in the month.

However this slump also comes as USD investors look towards 2020 as the US gears up for what is likely to prove an extremely turbulent Presidential election, especially if a disruptive Democrat such as Bernie Sanders emerges as the candidate to face Trump next year.

No-Deal Brexit Fears Continue to Hang Over the Pound (GBP)

While the Pound (GBP) may be off to a solid start against the US Dollar (USD) this week, it is struggling to replicate this success against its other peers as Brexit uncertainty remains ever present.

GBP investors remain acutely aware of the short time frame that Boris Johnson has left himself to negotiate the UK’s future trade relationship with the EU.

Johnson has ruled out extending the Brexit transition period past December 2020, going so far to enshrine the date into law through amending his EU Withdrawal bill passed by UK parliament earlier in the month.

Most analysts are in agreement that at best this will only allow for a trade deal of only limited scope, and creates a significant risk that the UK could crash out of the EU at the end of 2020.

GBP/USD Exchange Rate Forecast: Weak PMI Figures to Soften the US Dollar?

Looking ahead, it’s set to be another short trading week as mostly markets close on Wednesday for the New Year.

However in spite of this there will still be a few key releases for traders to keep their eyes on.

In the US, the publication of the ISM manufacturing PMI could dampen the appeal of the US Dollar this week as it is expected to show that growth in the US factory sector contracted for the fifth consecutive month in December.

USD investors will also keep a close eye on the publication of the minutes from the Federal Reserve’s December policy meeting as they seek greater clarity on the Fed’s next monetary policy steps.

Meanwhile, the UK will publish its own manufacturing PMI this week, with the final reading expected to confirm that the factory sector remained in a slump in December and capping any upside in the Pound.

Matthew Andrews

Contact Matthew Andrews