BoE Briefly Knocks Pound to US Dollar (GBP/USD) Exchange Rate but Brexit Hopes Buoy Sterling

Pound to US Dollar Exchange Rate Sustains Recovery on Brexit Deal Hopes

Update 16:50 BST 17/09/2020:

The Pound to US Dollar (GBP/USD exchange rate briefly dipped after the Bank of England (BoE) policy decision. This is because the bank indicated that it was more seriously looking into negative interest rates.

However, towards the end of the European session the Pound (GBP) advanced again. Fresh comments from European Commission President Ursula von der Leyen helped boost hopes that a Brexit deal was still possible.

She said:

‘I am still convinced it can be done.

It is better not to have this distraction questioning an existing international agreement that we have, but to focus on getting this deal done, this agreement done — and time is short.’

At the time of writing on Thursday afternoon, GBP/USD trended in the region of 1.29. The pair has been able to sustain most of this week’s recovery attempts.

(Originally published 10:51 BST 17/09/2020)

Pound to US Dollar Exchange Rate Higher despite Upbeat Federal Reserve

Investors continued to buy the Pound Sterling to US Dollar (GBP/USD) exchange rate today, despite yesterday’s Federal Reserve news bolstering the US Dollar (USD) against other rivals. Markets are awaiting today’s Bank of England (BoE) news.

While no-deal Brexit fears persist, GBP/USD has been able to claw back around half of last week’s gains. Since opening this week at the interbank level of 1.68, GBP/USD has gained over two cents.

GBP/USD currently trends in the interbank region of 1.71. It is still around two cents below last week’s levels of 1.73.

However, unless there are optimistic Brexit or Bank of England developments, the Pound’s (GBP) potential for gains may be limited. The US Dollar is also likely to see continued pressure amid a lack of supportive data lately.

Pound (GBP) Exchange Rates Firm as Markets Await Bank of England (BoE)

The Pound (GBP) continued its attempts to recover today, despite a lack of fresh support for the UK outlook.

Concerns persist about the possibility of a no-deal Brexit. The UK government’s controversial bill to rewrite the Brexit withdrawal agreement continues to cause fears of a potential collapse in negotiations.

Investors are buying the Pound on speculation that the government position could soften. It is also climbing in profit-taking ahead of the Bank of England’s (BoE) policy decision later today.

Analysts don’t expect any surprises from the BoE. According to Analysts at TDS though, the bank could become more dovish:

‘This month’s Bank of England decision isn’t expected to be any kind of turning point, with no new forecasts at this meeting and no need to address the QE programme as it still has room to run. However, we do look for a slightly dovish turn, with more focus on the downside risks to growth going forward.’

US Dollar (USD) Exchange Rates Up on Fed but Gains Limited

Last night saw the Federal Reserve hold its September policy decision. The US Dollar (USD) saw stronger performance as investors perceived the bank as being fairly upbeat on the US economy’s coronavirus pandemic recovery.

According to Joe Manimbo, Senior Market Analyst at Western Union Business Solutions:

‘But what’s keeping a floor under the dollar so far is that the Fed upgraded its economic forecast for GDP for 2020. The new projection is -3.7%. That’s not as bad as (the projection) from June,’

However, the Fed also indicated that US monetary policy would remain ultra-loose for a long time to come.

On top of this, analysts have said that without more stimulus the US economy could slow again. This is keeping uncertainty in the US outlook as well.

Pound to US Dollar (GBP/USD) Exchange Rate Focus Shifts Back to UK

With the Federal Reserve’s tone largely unsurprising last night, the Pound to US Dollar (GBP/USD) exchange rate is likely to return its focus to UK developments.

There is still broad uncertainty over how the Brexit process could unfold. Any signs that the UK government could soften its hard positions could help the Pound to sustain a rebound.

On the other hand, if this has a negative impact on Britain’s ability to make trade deals, the Pound may give up its advances.

The Pound could also fall if the Bank of England (BoE) is more dovish than expected at today’s policy decision. If the bank plays up coronavirus second wave concerns and Brexit uncertainties, the Pound may fall again.

UK retail sales results will round off the week tomorrow. Weak UK data could further limit the Pound to US Dollar (GBP/USD) exchange rate’s ability to recover.

Josh Jeffery

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