While Brexit uncertainties and US Dollar resilience have kept the pressure up, the British Pound to US Dollar (GBP/USD) exchange rate touched new monthly highs on Tuesday morning thanks to fresh optimism in UK-EU Brexit negotiations, as well as some surprisingly strong UK wage data.
Despite some late-week Brexit optimism, GBP/USD still slipped from 1.2957 to 1.2922 last week as safe haven demand made the US Dollar resilient. However, this week so far GBP/USD has seen solid gains. GBP/USD climbed a cent on Monday and briefly hit a monthly high of 1.3077 on Tuesday morning. At the time of writing, GBP/USD was trending in the region of 1.3035.
GBP Boosted by Brexit Speculation with Further Support from Wage Data
Investors opted to buy the Pound on Monday in reaction to some comments from EU Chief Negotiator Michel Barnier, which finally gave the Pound a solid gain against the recently resilient US Dollar.
While further Brexit uncertainties or boosts in safe haven demand could knock GBP/USD back down again slightly, for now the Pound recovery rally has been gradually continuing.
On Monday, EU Chief Negotiator Barnier said that he believed it was ‘realistic’ to expect that a UK-EU Brexit deal could be reached within the next eight weeks, as Brexit negotiations accelerate towards a planned UK-EU Brexit summit in November.
According to Connor Campbell, Financial Analyst from Spreadex:
‘If one person can shift Sterling at the moment it is Michel Barnier. The currency is desperate for any signs of good news from the EU’s chief negotiator, often making the most of some pretty tepid statements.
Monday’s gains seem slightly more justified however, with Barnier saying that it was a ‘realistic’ possibility a deal could be reached by November. And though, of course, the content of any deal is the thing that really matters, at the moment the Pound will take what it can get.’
As Pound investors are hungry for optimistic news, the Pound saw some more domestic support on Tuesday in the form of Britain’s latest wage price growth results.
While Britain’s latest employment change data was underwhelming, average earnings came in higher than forecast in both major prints.
Excluding bonuses, UK wage growth improved from 2.7% to 2.9% rather than the expected 2.8%, and including bonuses the figure unexpectedly improved from 2.4% to 2.6%.
USD Strength Slips on Mixed Risk-Sentiment
Much of the US Dollar’s recent strength has been due to market demand for safe haven currencies, combined with expectations that the US economy will continue to strengthen.
However, investors are hesitant to buy the strong US Dollar much higher either, and some have been looking for opportunities to sell the currency from its recent highs in profit taking.
While US-China trade tensions continue to worsen and keep the US Dollar relatively appealing as a safe haven, investors are also becoming more concerned about the possibility that the US economy could be negatively impacted by US trade protectionism.
US Dollar investors are also anxious about the possibility of US-Japan trade jitters worsening. As the Japanese Yen (JPY) is often perceived as safer than the US Dollar, this could leave the Yen as the market’s safe haven of choice.
Optimistic Brexit developments have put pressure on the US Dollar too. Investors were a little less eager for safe haven currencies amid hopes that UK-EU Brexit negotiations could end more amicably.
GBP/USD Forecast: Brexit, Bank of England (BoE) and US Inflation in Focus
While the Pound to US Dollar exchange rate is currently on track to end the week higher, there is still plenty of potential for the pair to see a notable shift in tone in the coming days.
The biggest potential influence will continue to be Brexit developments. If perceived Brexit fissures in the UK government worsen, or if EU negotiators toughen their tone again, the Pound could shed some of its recent gains.
However, safe haven demand and news due in the coming sessions could also prove influential for GBP/USD.
Thursday, especially, could see a shift in GBP/USD if the day’s anticipated Bank of England (BoE) policy decision or US Consumer Price Index (CPI) inflation rate figures surprise investors.
The BoE is not expected to announce any changes to UK monetary policy, but if the bank takes a surprising tone on Britain’s economic outlook or Brexit negotiations the Pound will likely react.
As for the US Dollar, if US inflation falls well short of forecasts it could dampen Federal Reserve interest rate hike bets and prompt investors to sell the US Dollar from its recent highs.
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TAGS: Pound Dollar Forecasts