Pound to US Dollar Exchange Rate Advances on US Political Uncertainties
Brexit concerns have been not been able to prevent the Pound to US Dollar (GBP/USD) exchange rate from advancing this week, due to US political uncertainties and trade concerns weighing on the US Dollar (USD).
GBP/USD has gained over a cent so far this week. The pair opened at the level of 1.3849 on Monday and briefly touched on a weekly high of 1.3993 on Wednesday. The pair trended near the level of 1.3970 during Thursday’s European session.
In recent sessions, US political news has worsened market concerns about the stability of the US Presidential administration.
The Presidency fired its Secretary of State, Rex Tillerson, and replaced him with CIA Director Mike Pompeo.
Tillerson had been in the role for just over a year and investors were hesitant to buy the US Dollar amid the uncertainty surrounding the top US diplomatic role.
Pound (GBP) Exchange Rate Strength Limited as Brexit Concerns Persist
Sterling (GBP) was unable to capitalise on US Dollar weakness.
GBP/USD could have seen even stronger gains throughout the last week if the Pound had seen stronger performance, but its gains were limited by uncertainties about Britain’s economic outlook amid the Brexit process.
In the UK Spring Statement on Tuesday, the watchdog Office for Budget Responsibility (OBR) noted that the UK could be paying off the Brexit bill for decades to come.
The group also forecast that UK growth would slow below 1.5% after 2018 for over three years. Market analysts argued that the slow growth forecasts should be cause for alarm to UK officials.
With the economic outlook gloomy and markets still uncertain on whether or not a post-Brexit transition period can be agreed, the Pound has been unappealing.
‘Trade War’ Fears Keep Additional Pressure on US Dollar (USD) Exchange Rates
On top of US political turbulence, markets are concerned that the US could spark a ‘trade war’ if the US Presidency keeps playing up on protectionist trade rhetoric.
Thursday saw the new US pick for economic adviser, Larry Kudlow, indicate that the US could lead a trade coalition of some sort against China.
China responded to the possibility of a ‘trade war’ by indicating that it would hit back at the US if the US wished to start a ‘trade war’.
Markets are now even more anxious that a trade war could be on the horizon, which is limiting US Dollar strength.
Pound to US Dollar (GBP/USD) Forecast: Political Developments in Focus
While major economic data and central bank news will come in next week, the Pound to US Dollar (GBP/USD) is more likely to react to any major political developments. The US Dollar will continue to be driven by US political news and trade developments.
The EU summit running from the 22nd to the 24th could be next week’s biggest event for GBP/USD traders, as the UK government expects to reach an agreement with the EU on a Brexit transition period during the summit.
If a Brexit transition agreement is indeed made, the Pound to US Dollar exchange rate is likely to see another week of gains as ‘hard Brexit’ concerns would lighten.
However, if UK-EU disagreements persist and no deal is made, GBP/USD could fall and Bank of England (BoE) interest rate hike bets could fall too.
Speaking of the BoE, both the Bank of England and Federal Reserve will hold March policy decisions next week. Any changes in tone from the banks could of course have an impact on GBP/USD.
In terms of data, UK inflation, wage growth and retail sales could be influential, as well as US new home sales and PMI projections from Markit.