Pound to US Dollar (GBP/USD) Exchange Rate Continues Slip from Monthly Best despite Brexit Optimism

Pound to US Dollar Exchange Rate Continues to Slide amid Safe Haven Demand

Update 16:59 BST 22/10/2020:

Boosted slightly by today’s stronger than expected US data, the US Dollar (USD) continued to advance this afternoon. The Pound Sterling to US Dollar (GBP/USD) exchange rate continued to slide lower.

This was mainly due to higher demand for safe haven currencies. US political and global coronavirus uncertainties have only intensified.

The Pound (GBP) remains appealing on optimism around Brexit negotiations. Uncertainties are limiting the Pound’s appeal. This is preventing it from sustaining its best levels.

(Originally published 13:01 BST 22/10/2020)

Pound to US Dollar Exchange Rate Slips but Remains Appealing Overall

Slightly higher demand for safe havens like the US Dollar (USD) caused the Pound Sterling to US Dollar (GBP/USD) exchange rate to slip lower today. Brexit optimism is persisting though, so Sterling (GBP) is likely to sustain notable gains.

The Pound’s movement has driven GBP/USD so far this week. After last week’s slip from the interbank level of 1.30 to 1.29, GBP/USD has more than recovered those losses this week so far.

Last night, GBP/USD touched on a high of 1.31. This was the best level for the pair in a month and a half, since Sterling’s early-September slump.

While GBP/USD is trending a little lower in the interbank region of 1.30 at the time of writing, it still remains well above last week’s levels.

Pound (GBP) Exchange Rates Avoiding Big Losses as Brexit Hopes Persist

After a week of uncertainty and concern that UK-EU Brexit negotiations could collapse, new developments yesterday caused the Pound (GBP) to surge.

EU Brexit Negotiator Michel Barnier said that a UK-EU Brexit deal was ‘within reach’. His comments were seen as optimistic enough to intrigue UK negotiators. Since then, a new round of negotiations is officially set to resume.

According to Michael Hewson, Chief Market Analyst at CMC Markets UK, overcoming this obstacle has made markets more confident that both sides want a deal:

‘The Pound reacted well to this new development, and while we’ve been here before on the optimism front, there is the distinct prospect that a pathway to some form of agreement is opening up,’

While Sterling is falling back from its highs today, this is largely investors taking some profit from yesterday’s huge gains.

US Dollar (USD) Exchange Rates Strengthen Slightly on Safe Haven Demand

The US Dollar’s (USD) movement was a little weaker in the first half of the week, as US fiscal stimulus hopes left markets more willing to take risks. This left safe havens like the US Dollar less appealing.

However, with less and less time until the 2020 US Presidential Election, hopes for fiscal stimulus to be agreed promptly are thinning.

Today, investors uncertain over US stimulus and the global coronavirus pandemic are looking for safe havens like the US Dollar once again. According to Derek Halpenny, Head of Research at MUFG:

‘There are a host of risk events that you could argue threatens risk assets and those threats should support the Dollar,

Yesterday’s moves were so significant, and with no new news to follow through on, there is a modest recovery in the Dollar.’

Pound to US Dollar (GBP/USD) Exchange Rate Likely to be Driven by Politics over Ecostats

Sterling (GBP) is being driven more by Brexit developments, while the US Dollar (USD) is driven by safe haven demand. As a result, the Pound to US Dollar (GBP/USD) exchange rate is likely to remain focused on political developments into next week.

UK-EU Brexit negotiations will resume in full soon. If comments from officials become more optimistic, the Pound could be in for further gains into November.

Hopes for a deal are rising and fears of talks collapsing are lightening, but if negotiations break down after all the Pound would still be in for huge losses.

The US Dollar will be driven by political news as well. As October draws to an end, the 2020 US Presidential Election will increasingly come into focus.

The outcome of the election will have a big impact on the global economy for the next four years, so polls and US politics overall is even more likely to influence market sentiment in the coming weeks.

While they are likely to be overshadowed by political focus, PMI projections from Markit due tomorrow could also influence the Pound to US Dollar (GBP/USD) exchange rate.

Josh Jeffery

Contact Josh Jeffery