Pound to US Dollar Exchange Rate Hit by Late-Week Brexit Fears
Despite a week of hopes that the UK and EU would extend Brexit negotiations, the Pound Sterling to US Dollar (GBP/USD) exchange rate was hit by late-week Brexit fears today.
After opening this week at the interbank level of 1.30, GBP/USD has been spending the week trending with a downside bias. GBP/USD even touched as low as 1.28 at various points throughout the week.
While GBP/USD has been able to hold above the week’s worst levels, Brexit fears and US Dollar (USD) strength have meant that the pair isn’t far above those lows. At the time of writing on Friday, GBP/USD trends in the region of 1.29.
UK-EU Brexit negotiations are expected to continue. However, UK Prime Minister Boris Johnson’s no-deal Brexit threat has kept fears of a possible no-deal outcome high.
Pound (GBP) Exchange Rates Jittery on Boris Johnson’s No-Deal Brexit Threat
The Pound (GBP) looked to end the week on more negative note, after UK Prime Minister Boris Johnson signalled that the UK would ramp up no-deal Brexit preparation.
In response to a tough negotiation stance from the EU, PM Johnson told the UK to get preparing for a no-deal Brexit. This knocked Sterling as feared of a negotiation collapse rose.
Mixed reports on whether or not talks are continuing are causing broad Pound volatility. The EU continues to state that talks will continue.
🇪🇺-🇬🇧 talks: the EU continues to work for a deal, but not at any price.
As planned, our negotiation team will go to London next week to intensify these negotiations.
— Ursula von der Leyen (@vonderleyen) October 16, 2020
On the other hand though, UK officials are saying talks will not continue unless the EU changes its stance. According to comments from a UK spokesperson:
‘There is no point in trade talks if the EU does not change its position. The EU effectively ended the trade talks yesterday. Only if the EU fundamentally changes its positions, will it be worth talking.’
US Dollar (USD) Exchange Rates Capitalise on Safe Haven Demand
Concerns about political uncertainty hurting the US economic outlook have not been enough to weigh down the US Dollar (USD) this week. Instead, the US Dollar has been able to capitalise on a rise in market demand for safe havens.
The US Dollar is a safe haven, a currency which benefits in times of global economic uncertainty.
As hopes for US fiscal stimulus to help tackle the coronavirus fade, investors avoid risks.
The worsening global coronavirus outlook is also causing safe haven demand to rise.
On top of this, strong US retail sales data further boosted USD support.
— Joe Weisenthal (@TheStalwart) October 16, 2020
Pound to US Dollar (GBP/USD) Exchange Rate Highly Sensitive to Politics and Coronavirus
Markets are still highly confused over the direction of UK-EU Brexit negotiations. UK officials are indicating that talks are over for now, but EU officials continue to say that negotiations will resume next week.
The Pound (GBP) will remain sensitive to developments in Brexit talks in the coming sessions. If the UK government really has walked away from negotiations, then the Pound could plummet as no-deal Brexit bets would surge.
However, if it turns out this is a negotiation tactic, hopes for a deal could rise. This could boost the Pound next week.
The US Dollar (USD), on the other hand, will continue to be influenced by shifts in market risk sentiment. Higher US safe haven demand on political or coronavirus uncertainty could keep the US Dollar appealing.
Next week will be a little quieter for notable US data, but upcoming UK retail sales and PMI stats could influence the Pound to US Dollar (GBP/USD) exchange rate as well.