GBP/USD Plunges to 6-Week Low Thanks to EU’s Brexit Ultimatum

The EU’s ultimatum for Boris Johnson to remove parts of his controversial Internal Market bill within three weeks saw the GBP/USD exchange rate plunge to a fresh six-week low.

Last Week: Growing Fears of No-Deal Scenario Drag Pound to Fresh Lows

With the two sides at an apparent impasse over the issue the consequent deterioration in trust led to increased odds of Brexit negotiations ending without any fresh deal.

Growing fears that the UK will end the transition period without a deal in place weighed heavily on the Pound as investors braced for greater economic headwinds to come.

Although the NIESR monthly gross domestic product tracker bettered forecasts, pointing towards a solid month of economic growth, this failed to shore up GBP exchange rates ahead of the weekend.

A surprise uptick in the US inflation rate helped to keep the US Dollar on a positive footing, meanwhile, in spite of the Federal Reserve’s current soft outlook on inflation.

Three Things to Watch Out for This Week

1. UK Unemployment Rate

As forecasts point towards an uptick in July’s UK unemployment rate reading the mood towards the Pound could sour further this week.

Evidence that the labour market weakened at the end of the second quarter, in spite of the government’s furlough scheme, may fuel renewed anxiety over the risk of further job losses to come.

2. Federal Open Market Committee Interest Rate Decision

Reaction to the Federal Reserve’s latest policy meeting may put pressure on the US Dollar, even though no change in policy looks likely at this stage.

As long as policymakers maintain a dovish outlook in the meeting’s accompanying commentary USD exchange rates may struggle to gain any fresh traction on Wednesday evening.

3. Bank of England Interest Rate Decision

Although the Bank of England (BoE) looks set to leave interest rates on hold at its September meeting the Pound could still face downside pressure on Thursday.

If the BoE expresses a greater sense of concern over the health of the economic outlook this sense of dovishness may encourage a fresh bout of weakness for GBP exchange rates.

GBP/USD Outlook

A lack of action from the Fed and BoE could still see the GBP/USD exchange rate come under fresh pressure this week as worries over the economic outlook persist.

Louisa Heath

Contact Louisa Heath