The Pound to US Dollar (GBP/USD) continued to gain today, trending even higher than it did on Wednesday.
Sterling continues to climb on hopes of a last minute Brexit deal being reached. At the time of writing the pair is currently trending around $1.361.
Pound (GBP) Exchange Rate Continues to Climb on Brexit Deal Hopes
The Pound continues to climb higher as further speculation that a Brexit deal is near causes investors to favour Sterling.
This morning MP’s were warned they could be recalled from Christmas recess next week, should a post-Brexit deal be secured.
Speaking in the Commons earlier this morning, Cabinet Minister Michael Gove said:
‘Intensive talks are ongoing with both negotiating teams working day and night to reach a deal.’
‘We’re going the extra mile in continuing the negotiations to see whether or not an agreement can be reached and we will continue to keep Parliament informed on our progress.’
Meanwhile, Michel Barnier, the European Commission’s chief Brexit negotiator, said talks were in the ‘final stretch.’
In this final stretch of talks, transparency & unity are important as ever: Debriefed @Europarl_EN Conference of Presidents this morning on 🇪🇺🇬🇧 negotiations.
Good progress, but last stumbling blocks remain. We will only sign a deal protecting EU interests & principles. pic.twitter.com/L25PWCKYAG
— Michel Barnier (@MichelBarnier) December 17, 2020
In the afternoon, the Bank of England (BoE) Monetary Policy Committee (MPC) held interest rates at a record low of 0.1 per cent as expected on Thursday but warned that a no-deal Brexit would hit the Pound and damage the economy.
US Dollar (USD) Exchange Rates Lowest Since April 2018
The US Dollar hit two-and-a-half year lows this morning following the Federal Reserve’s pledge last night to keep buying $120bn of government bonds each month with newly-minted dollars until the recovery is secure.
Alex Kuptsikevich, FxPro’s senior market analyst, explained:
‘In the final meeting of 2020, the FOMC promised to continue asset purchases on the balance sheet by 120B monthly, until inflation confidently recovers to 2%. These comments allowed the markets to maintain their rising trend as the dollar continues to decline.’
This supported risk appetite and equity markets, which in turn weighed on safe-haven demand for the US Dollar. Furthermore the Federal Open Markets Committee is now expecting US GDP to contract 2.4% in 2020 before rising 4.2% in 2021, also supporting the upbeat market mood.
Also affecting the USD exchange rate was the publication of disappointing US retail sale figures for November, Kuptsikevich went on to say:
‘It wasn’t just the Fed that worked against the dollar yesterday, but also weak retail sales data. This showed a decline of 1.1% in November, which was the second month of decline and reflected amplified concerns of Americans due to increased illnesses.’
Pound to US Dollar Exchange Rate Awaits Fiscal Stimulus
Looking ahead, USD investors are hoping that US Congress could reach its own deal soon, on fiscal stimulus, with a deadline of tomorrow.
With top leaders of the Democratic-controlled House of Representatives and Republican-led Senate sounding more positive than they have in past months. The positivity is supporting risk-on trade which is further lowering demand for the safe-haven US Dollar.
Pound investors will be looking to tomorrow’s release of retail sales figures for November.
Retail Sales are forecast to fall, which could add pressure to the Sterling.
Furthermore, Brexit talks will remain in focus, with hopes that a deal is imminent, and can be passed through government before the deadline just two weeks away.
The Pound to US Dollar exchange rate may also tumble from its highs if US stimulus talks fail, as this would boost safe-haven demand and the US Dollar.