Pound to US Dollar Exchange Rate Slips Following End-2019 Climb
In the final session of 2019, the Pound Sterling to US Dollar (GBP/USD) exchange rate experienced a jump in demand amid broad US Dollar (USD) weakness. However, with the Brexit process set to cause another year of Pound (GBP) uncertainty, the pair’s gains have been limited.
Since markets opened this week, US Dollar weakness has seen GBP/USD climb from the interbank level of 1.30 into the region of 1.32 again.
GBP/USD has been unable to hold this week’s half-month-high though, and slipped slightly this morning. The Pound wound back slightly today after early week gains, while the US Dollar steadied from days of losses.
Looking ahead though, expectations for improved global growth are likely to keep weighing on the US Dollar, which over-performed for much of last year.
Pound (GBP) Exchange Rates Under Pressure with Brexit Under a Month Away
A year of broad Brexit uncertainty may finally have come to an end, but 2020 looks like it could well be another year of Brexit news hitting the Pound (GBP) and Britain’s economic outlook.
UK stocks are up today, thanks in part to fresh weakness in the Pound which is falling slightly following some gains at the end of 2019.
According to Connor Campbell, Analyst at SpreadEx, it is also partially due to market anxiety ahead of Britain formally leaving the EU at the end of January:
‘The FTSE, which struck 7650 towards the end of last year before tumbling at its close, added 0.8%, lifting back to 7600 in the process.
The index was helped by Sterling’s 0.3% decline against the Dollar and Euro alike, the currency feeling the pressure now that we are less than one month away from leaving the EU.’
Britain’s exit from the EU is now unavoidable as the UK government smoothly passed its Brexit bill before the festive season last year. Brexit will take place on the 31st of January and a transition period will last throughout 2020.
The transition period will include UK-EU negotiations, but there are concerns that the negotiations will fail to forge a solid new relationship before the period is over. This will keep pressure on the Pound for the longer term.
US Dollar (USD) Exchange Rate Steadies but 2020 Outlook Limiting Gains
The US Dollar (USD) saw a slight rise in demand this morning, as it rebounded slightly from the broad losses it experienced at the end of last year.
The US Dollar’s gains were more a slight rebound from the lows it saw earlier this week though, as the outlook for the US currency remains weaker. The currency remains under pressure as further weakness is expected.
According to Elias Haddad, Senior Currency Strategist at Commonwealth Bank of Australia:
‘A more encouraging global growth outlook and flush Dollar liquidity conditions are undermining the USD,
Specifically, global fiscal/monetary policy settings will remain accommodative in 2020 and China’s growth slowdown is stabilizing.’
It follows a 2019 which ultimately saw surprisingly small movement in the US Dollar. The key currency was up only 0.24% throughout 2019 overall, as investors sold the currency towards the end of the year following its strong performance earlier in the year.
Growth Outlooks in Focus for Pound to US Dollar (GBP/USD) Exchange Rate
While the Pound (GBP) outlook will remain highly focused on the Brexit process and what it means for Britain’s economic outlook going forwards, the Pound to US Dollar (GBP/USD) exchange rate will be focused on growth as well.
The US Dollar (USD), in particular, will be influenced by growth outlooks. If there are further signs that global growth is recovering, the US Dollar’s favourability will continue to weaken.
This could mean that GBP/USD continues to advance even amid broad Brexit uncertainties.
2020 starts off with multiple key US ecostats, with US manufacturing PMIs coming in before the end of the week. Markit’s final December PMIs will come in today, followed by ISM’s more key manufacturing PMI tomorrow.
If US manufacturing PMIs fall short of forecasts, Federal Reserve interest rate cut bets could deepen and the US Dollar could see fresh weakness.
Friday’s American session will also see the publication of the Federal Reserve’s latest meeting minutes report, which could cause Pound to US Dollar (GBP/USD) exchange rate movement at the end of this week and early next week.