Returning Brexit Jitters Cause Pound to US Dollar (GBP/USD) Exchange Rate to Shed Last Week’s Gains

Pound to US Dollar Exchange Rate Steadying as Investors Await Bank of England (BoE)

While the Pound’s (GBP) selloff was limited and its losses slowed today, the Pound Sterling to US Dollar (GBP/USD) exchange rate is only steadying today. The pair trends low due to concerns over Britain’s outlook, as well as various factors supporting the US Dollar (USD).

Since opening this week at the interbank level of 1.3073, GBP/USD has been trending lower on a combination of US Dollar strength and returning Brexit jitters.

While GBP/USD has been able to keep holding above the key level of 1.30, the pair has largely shed last week’s gains and did dip into the interbank level of 1.29 yesterday.

While the Federal Reserve policy decision could cause US Dollar movement this evening, tomorrow’s Bank of England (BoE) policy decision could be one of this week’s most pivotal events for the Pound to US Dollar exchange rate.

Pound (GBP) Exchange Rates Lack Drive as Investors Await Bank of England (BoE)

Last week’s UK data was not strong enough to totally offset bets of a possible January interest rate cut from the Bank of England (BoE). Anticipation for the BoE decision, set for tomorrow, is keeping the Pound (GBP) pressured this week.

The Pound tumbled yesterday, knocked lower as market Brexit uncertainties returned.

Concerns over Brexit and the future relationship between the UK and EU had been absent for much of January. However, as Britain will be leaving the EU on Friday, investors are once again becoming anxious over Brexit.

Amid BoE and Brexit uncertainties, Sterling was unable to notably recover today.

According to Adam Cole, Chief Currency Strategist at RBC Capital Markets:

‘We’re just really going to be range-trading ahead of the Bank of England tomorrow,

OIS pricing is pretty much 50-50, so we should see a decent reaction whatever outcome,’

US Dollar (USD) Exchange Rates Benefitting from Safe Haven Demand

Markets have spent much of this week so far digesting the spread of a coronavirus outbreak in China.

Over the weekend, the spread worsened and this caused market panic on Monday. Investors seeking safe haven currencies bought the US Dollar (USD), though other safe havens like the Japanese Yen (JPY) benefitted more from the news.

On top of safe haven demand, the US Dollar has been gaining on a relatively strong US economic outlook. US data published in recent sessions has been fairly strong, helping the US Dollar to hold its gains.

Anticipation for this evening’s Federal Reserve policy decision is also keeping the US Dollar supported.

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

The Federal Reserve will hold its January policy decision tonight, and the Bank of England (BoE) will follow tomorrow.

While some analysts believe the Fed could still cut US interest rates at some point in 2020, the Fed is not expected to change its tone today.

The US Dollar (USD) could remain resilient and appealing if the Fed maintains a steady tone, but could weaken if the bank ramps up concerns about the US economic outlook.

Overall though, tomorrow’s Bank of England policy decision is likely to be even more influential.

Bets of whether or not the bank could cut UK interest rates tomorrow are still around 50/50. This means that whichever decision or tone the bank takes, it has a chance of having a notable impact on the UK and Pound (GBP) outlooks.

If the BoE cuts UK rates or expresses deeper concern about Britain’s economic outlook, GBP/USD could slump. GBP/USD would see a stronger recovery if the outlook is more optimistic though.

Tomorrow is likely to be influential for the US Dollar as well. US growth rate results from Q4 2019 have the potential to influence the Pound to US Dollar (GBP/USD) exchange rate.

Josh Jeffery

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