GBP/USD Exchange Rate Avoids Losses despite Safe Haven Demand
Despite a weaker Pound (GBP) and a stronger US Dollar (USD), the Pound US Dollar (GBP/USD) exchange rate is avoiding major losses this week. Investors are hesitant to move too much on either currency as major political developments are awaited.
Since opening this week at the interbank level of 1.35, GBP/USD has been trending with a downside bias.
At the beginning of the week GBP/USD briefly shed all of last week’s gains but has since been trending in the region of 1.34. At the time of writing, GBP/USD is attempting a bigger recovery.
GBP/USD has been able to avoid falling too far from last week’s 2020 best of 1.36.
If a Brexit deal is reached soon, the Pound to US Dollar exchange rate could be in for an even bigger advance.
Pound (GBP) Exchange Rates Continue to Benefit from Hopes a Brexit Deal is Close
The UK and EU have been having to-the-wire negotiations over a Brexit deal for the past few weeks. While time is running out to reach a deal before the end of the Brexit transition period, it is expected that both sides do want a deal.
UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen are set to hold a call over the coming day.
On top of this, there are reports that EU member states are preparing for a provisional application of a trade deal, in the possibility that a deal is reached soon.
According to one EU diplomat, a deal could come as early as today:
‘EU member states would have to approve a provisional application of the deal with effect from Jan. 1 because there is not enough time for it to be ratified by the European Parliament,’
This is keeping the Pound appealing despite Britain’s gloomy coronavirus outlook.
US Dollar (USD) Exchange Rates Hit by Underwhelming US Ecostats and Fiscal Policy Jitters
Earlier in the week, the US Dollar was benefitting from safe haven demand. Investors wanted to look for safer investments amid concerns over a new more infectious strain of the coronavirus Covid19 discovered in Britain.
Today though, the US Dollar’s appeal is being weighed by domestic concerns.
Markets are hesitant to keep buying the US Dollar amid concerns that the US fiscal policy package agreed by Congress in the past week could still be blocked.
On top of this, the latest US economic data remained concerning, making markets concerned about how the US economy is handling the coronavirus pandemic.
US economic data continues to flash warning signs. Consumer spending fell for the first time in 7 months in Nov, pulling the 1yr trend deeper into the red: https://t.co/Ai1t1PgnXD Jobless claims rose less than forecast last week but the 803k rise is still huge & a macro threat: pic.twitter.com/PapLOVeKw5
— James Picerno (@jpicerno) December 23, 2020
Pound to US Dollar (GBP/USD) Exchange Rate May Firm Gains if Brexit Deal Reached
With speculation rising that a UK-EU Brexit deal is imminent, the Pound to US Dollar exchange rate could be in for further gains.
If a deal is reached, the Pound’s strength depends on how smoothly it is able to be implemented into law.
With only around a week until the end of the Brexit transition period, time is of the essence. It is still possible that the UK could face a cliff-edge scenario if a deal is not passed into UK law in time.
Still, a deal is ultimately good news for the Pound overall. If a deal is reached, the Pound’s longer term outlook at least will be higher.
Of course, if no deal is reached after all this would of course be bad for the Pound and could cause GBP/USD losses through the end of the week.
The US Dollar could strengthen on safe haven demand if global coronavirus fears worsen. Overall though, this week’s jump in safe haven demand may not be enough to drag the Pound to US Dollar exchange rate too much lower.