GBP to USD Exchange Rate Struggles to Hold Best Levels on US-China Trade Jitters

September 18, 2018 – Written by James Fuller

The US Dollar has seen notable losses so far this week, as investors sell the strong currency from its best levels in profit-taking and amid underwhelming US data in recent sessions. However, the British Pound to US Dollar exchange rate has been unable to hold its best levels, as worsening US-China trade jitters mean that safe haven currencies are still seeing support.

Despite its Tuesday slip, GBP/USD is on track to see another week of gains so far. Last week saw GBP/USD advance from 1.2922 to 1.3068, and GBP/USD has easily held above the key 1.30 level so far this week. Overnight, GBP/USD briefly touched on its best level in over a month, 1.3167, but at the time of writing GBP/USD trended closer to the level of 1.3127.

GBP Slips from Highs as Investors Anticipate Brexit Developments

There has been little in the way of UK political or economic news thus far this week, leaving the Pound reacting largely to last week’s news and anticipated upcoming events.

Since last week’s comments from EU Chief Negotiator Michel Barnier, the Pound has seen much sturdier support.

This is because fears of a ‘no-deal Brexit’ have lightened, with investors a lot less concerned that a worst-case scenario Brexit was no longer becoming a more likely potential outcome.

Still, with an EU summit set for later this week and markets hoping for more developments in UK-EU Brexit negotiations as a result of the event, Pound investors are becoming more anxious again.

According to Jane Foley, FX Strategist from Rabobank, there is still too much uncertainty to support much further Pound strength:

‘Although November was cited as a potential date for a deal the reality is there is still a lot more to be discussed and there is a huge gap between the warring factions of the Tory party,’

This has made it difficult for the British currency to sustain its best levels versus the US Dollar.

According to some analysts, the Pound to US Dollar exchange rate is approaching overbought levels too, keeping a further lid on the pair’s potential for gains.

However, ultimately the Pound’s mixed movement so far this week has been due to a lack of Brexit developments since last week – so another advance is still possible too.

USD Investors Anxious on US-China Trade Uncertainties

Overnight, the US and China ramped up protectionist trade rhetoric against one another.

The US announced plans for tariffs on US imports of around $ 200b worth of Chinese goods, while China announced it would retaliate without detailing its retaliation plans.

Typically, this news would boost market demand for safe haven currencies like the US Dollar as investors scramble to avoid taking risks. However, the latest escalation in US-China trade tensions has been met with mixed risk-sentiment.

This was at least partially due to speculation that the US and China could be seeking out another round of trade negotiations, which have allegedly not yet been cancelled despite the latest escalations.

Investors have also been hesitant to buy the US Dollar due to recent mixed US data.

Last week’s US inflation stats fell short of forecasts and weighed on Federal Reserve interest rate hike bets, while Monday’s US Empire State Manufacturing Index from September unexpectedly slumped to just 19.0, despite being predicted to only slip from 25.6 to 23.

GBP/USD Forecast: UK Inflation and US Housing Data Ahead

Some notable data could inspire movement in the Pound to US Dollar exchange rate on Wednesday, as UK inflation stats and US housing data from August will be published.

Britain’s August Consumer Price Index (CPI) inflation rate report is forecast to have accelerated from 0.0% to 0.5% month-on-month, and have slid from 2.5% to 2.4% year-on-year.

If UK inflation falls short of expectations, investors could become more concerned about how Brexit uncertainty is affecting UK price pressures. This could dampen Bank of England (BoE) interest rate hike bets and weaken the Pound.

US building permits and housing starts data from August will be published during the American session, but Thursday’s US existing home sales results could prove even more influential.

Of course, potential developments in US-China trade negotiations are likely to prove influential to the US Dollar too, and the EU summit on Thursday could have an even bigger impact on the Pound to US Dollar exchange rate if there are notable Brexit developments.

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TAGS: Pound Dollar Forecasts