Pound to US Dollar Exchange Rate Jittery as Markets Await Brexit Developments
Update 16:43 BST 01/10/2020:
It’s been a highly volatile day for the Pound Sterling to US Dollar (GBP/USD) exchange rate, with both currencies fluctuating. Mixed reports on Brexit negotiations are weighing on Sterling (GBP), while the US Dollar (USD) is mixed on US stimulus speculation.
At the time of writing, GBP/USD has fallen from the day’s highs of 1.29 and once again trends in the interbank region of 1.28.
Investors are especially jittery on Sterling today. Earlier reports said that UK-EU negotiators were still far from a deal, but other reporters have since said that officials are becoming more optimistic.
Sterling fell, then rose, then fell again on these developments. Overall, the uncertainty of how negotiations could unfold before the week comes to an end is keeping pressure on the Pound.
(Originally published 11:31 BST 01/10/2020)
Pound to US Dollar Exchange Rate Fails to Advance Further
Last night saw the Pound Sterling to US Dollar (GBP/USD) exchange rate gain on quarter-end flows, but fresh Brexit uncertainties are knocking the pair again today. Speculation is rising that despite Brexit talks coming to an end, negotiators are still far from a deal.
GBP/USD has been trending with an upside bias this week. After opening the week at the interbank level of 1.27, GBP/USD jumped and has been holding higher since.
Yesterday saw GBP/USD rise once again and touch levels in the region of 1.29. This morning, GBP/USD briefly touched its best levels in over a week.
However GBP/USD has since been tumbling again. GBP/USD is currently being pressured by Brexit uncertainty and trends in the interbank region of 1.28.
UK-EU Brexit negotiations are likely to be in focus as the week draws to an end. If safe haven demand rises again, the US Dollar (USD) could capitalise on Pound (GBP) weakness.
Pound (GBP) Exchange Rates Hit by Brexit Fears and UK Manufacturing Falls Short
For much of the week, the Pound (GBP) has been trending higher amid hopes that brinksmanship in UK-EU Brexit negotiations would make a breakthrough more likely this week.
However, after days of hopes that markets could finally see a Brexit breakthrough any moment now, sources reportedly poured cold water on those hopes today.
Reportedly, the UK and EU are still far apart on key issues, leaving a deal out of reach. Fears of a potential no-deal outcome to Brexit have returned to the Pound as a result.
According to Neil Jones, Head of FX Sales at Mizuho:
‘I suggest there is further downside ahead for the Pound on this news,
A no deal is looking more likely than expectations over the last couple of weeks as sentiment in favour a deal was shaping up nicely,’
The Pound also failed to find much support in the latest UK ecostats. Britain’s final September manufacturing PMI from Markit fell slightly short of expectations, and the report showed that many more job losses are likely going forward.
US Dollar (USD) Exchange Rate Gains Limited as Safe Haven Demand Softens
Earlier in the week, the US Dollar (USD) briefly continued its safe haven rally on global coronavirus fears, as well as concerns over Brexit and US politics.
However, since then the market’s mood has cooled slightly. Towards the end of the week, investors are more willing to start taking risks again.
Hopes for progress in a coronavirus vaccine, as well as hopes for fresh US fiscal stimulus, both made markets more willing to take risks again. This left the safe haven US Dollar weaker.
Political uncertainty in the US has added to hopes that US Congress will be able to pass a stimulus package to help the nation weather the coronavirus pandemic. According to Jeremy Stretch, Head of G10 FX Strategy at CIBS:
‘There’s a bit of a race for Congress to get something in the books before they leave for the recess for the election. If you’ve got airlines talking about laying off more than 30,000 workers, that doesn’t play as a positive narrative going into the election if you’re the incumbent,’
Pound to US Dollar (GBP/USD) Exchange Rate Awaits Brexit Outcomes
The final scheduled round of UK-EU Brexit negotiations is set to end tomorrow. So far, there appear to have been no optimistic developments in this week’s talks.
With less than half a month until a mid-October deadline, a failure to reach a deal by the end of the week is likely to lead to a surge in fears that the Brexit process could lead to a worst-case scenario no-deal outcome.
No-deal Brexit bets could mean greater losses for Sterling. This would only further weaken the Pound outlook, which has already been hit by a worsening domestic coronavirus situation in recent weeks.
On the other hand though, if the UK-EU brinksmanship in talks does lead to a very last minute breakthrough or extension of talks, the Pound could see a surge in demand as bets for a deal would rise.
While Brexit will remain the primary focus for GBP/USD, the US Dollar’s (USD) movement could also be influenced by shifts in market risk-sentiment.
On top of this, the US Non-Farm Payroll, due for publication tomorrow, could give investors a better idea of how the US economy is performing and cause some late-week movement in the Pound to US Dollar exchange rate.