The Pound to US Dollar exchange rate is sliding so far this week as rising no-deal Brexit fears are pushing Sterling lower against many major rivals.
Reports emerged that Boris Johnson is preparing to walk away from UK-EU talks if a deal is yet to be agreed by 15 October, while the UK government is drawing up legislation to override part of the withdrawal agreement on Northern Ireland.
Added to this, the resignation of the UK government’s most senior lawyer over Brexit plans, and an admission from a government minister that a new bill to amend the withdrawal agreement breaks international law are both weighing heavily on the GBP/USD exchange rate this week.
Last Week: US Dollar Rebounds as GBP/USD Exchange Rate Falls on Dovish BoE and Upbeat Data
The US Dollar continued struggling at the start of the week on concerns over the Federal Reserve’s new inflation targets announced at the Jackson Hole symposium, which will likely mean interest rates stay near zero for longer than previously thought.
However, the US Dollar recovered losses in the second half of the week as ISM PMI figures indicated the US private sector continued expanding in August. Added to this, the non-farm payrolls on Friday supported USD exchange rates, despite a lower-than-expected reading, as unemployment fell sharply below 10% to 8.4%,
Meanwhile, the Pound US Dollar exchange rate weakened further at the end of the weak as concerns mounted in the UK over lower-than-expected service sector activity data and the threat of rising unemployment.
On top of this, Bank of England policymakers warned of lasting economic scarring, a substantial rise in unemployment, and hinted at further loosening monetary policy, which weighed on the Pound to US Dollar exchange rate.
Three Things to Watch Out for This Week
- Brexit Developments
Brexit uncertainty is returning to focus this week, amid the latest reports over the UK government’s plans to adjust the Brexit withdrawal agreement and potentially walk away from talks by mid-October. This has caused the Pound to US Dollar exchange rate to continue tumbling through the week, with GBP/USD falling below key resistance levels.
- US Senate and House of Representatives Return
The US Senate and House of Representatives return could drive movement in USD through this week. After US fiscal stimulus measures came to an end in July and the following impasse in Washington through August, USD investors will hope an agreement on new stimulus can be reached to support the US economy.
- US Inflation Rate
This week will be quieter for US data, but key inflation rate data on Friday could drive US Dollar movement if inflation continues to accelerate as expected.
GBP/USD Exchange Rate Outlook
The Pound to US Dollar exchange rate will likely experience volatility this week. GBP exchange rates could suffer as Covid-19 infections increase in the UK, redundancies worries rise, and an agreement in UK-EU Brexit talks appears unlikely.
Meanwhile, USD may continue recovering against the Pound on hopes of a fiscal stimulus package agreement in US Congress, rising US inflation, and a risk-off mood supporting US Dollar exchange rates.