GBP to USD Exchange Rate Sheds Last Week’s Gains as Investors Head for Safe Havens

January 28, 2020 – Written by James Fuller

A combination of domestic and global factors is keeping the US Dollar appealing today, knocking the British Pound to US Dollar (GBP/USD) exchange rate even lower following yesterday’s mixed movement. Investors were already selling the Pound on Bank of England (BoE) and Brexit speculation this week. Upcoming Federal Reserve and Bank of England news is likely to be highly influential for both currencies in the coming sessions.

Last week saw GBP/USD climb from 1.3015 to 1.3072 throughout the week, but the pair was unable to hold Friday’s fortnight best of 1.3150 due to persisting BoE rate cut bets and rising safe haven demand.

This week so far, GBP/USD has already shed most of last week’s gains. At the time of writing, GBP/USD trends close to the key 1.3000 level.

While GBP/USD is avoiding a fall to last week’s lows, the Pound could be in for further losses if the Bank of England takes a more dovish tone on Thursday.

GBP Exchange Rates Jittery as Brexit Uncertainties Return to Cloudy Outlook

Despite hopes that Britain’s economy could rebound in 2020, and that Brexit negotiations could go smoothly, the nation’s outlook still contains a large number of uncertainties that weigh heavily on the Pound.

Sterling has been weighed by Bank of England (BoE) interest rate cut bets in recent weeks, and the latest data has not been strong enough to offset bets completely.

With the possibility of a BoE rate cut this week persisting, the Pound is also unappealing amid returning Brexit uncertainties today.

Britain is set to formally leave the EU at the end of the week, and market concerns over how Britain’s relationship with the EU will change going forward is keeping pressure on Sterling.

On top of BoE and Brexit uncertainties, this week’s latest UK data has done little to make investors more confident in the Pound outlook either.

The Confederation of British Industry’s (CBI) latest UK retail sales data fell short of expectations, remaining at 0 rather than rising to 3 as forecast. According to Anna Leach, Deputy Chief Economist at CBI:

‘2020 looks set to be another tough year for the sector as growth in households’ disposable income is set to remain modest and retailers continue to battle longer-term issues such as digital disruption and the cumulative burden of policy costs. The upcoming Budget provides an opportunity for the Chancellor to support retailers, primarily by fixing the broken business rates system.’

USD Exchange Rates Bolstered by Safe Haven Demand and Strong US Data

A combination of global safe haven demand, as well as signs of strength in US ecostats, have left the US Dollar appealing once again this week.

While the US Dollar hasn’t benefitted as much as safe haven rivals like the Japanese Yen (JPY) and Swiss Franc (CHF), it is still considered a safe haven and has been gaining on the latest market uncertainties.

Over the weekend, fears that a coronavirus spreading in China could impact global economic growth worsened. This has helped the US Dollar to remain fairly appealing this week so far. Investors have sold currencies correlated with risk in favour of buying the US Dollar instead.

On top of this, this week’s US data has been decent so far. While yesterday’s new home sales were disappointing, Dallas Fed manufacturing data beat forecasts, as did today’s US durable goods orders results.

Durable goods orders rose from -3.1% to 2.4% in December. Analysts noted that the outlook was mixed however, with orders ultimately ending 2019 on a weak note.

GBP/USD Exchange Rate Forecast: Central Bank Developments in Focus

The Pound to US Dollar exchange rate has been driven more by global risk-sentiment and Brexit uncertainties this week so far, but with highly anticipated central bank news in the coming sessions this could change.

Wednesday’s US goods trade balance and wholesale inventories data could be influential, but Wednesday’s biggest news will be the Federal Reserve’s January policy decision.

If the Fed takes a more dovish tone on US economy than expected due to mixed US data and global growth uncertainties, the US Dollar could weaken tomorrow.

Thursday’s Bank of England (BoE) decision will be even more influential though.

The highly anticipated meeting will reveal the bank’s tone on Britain’s economy. If the BoE surpises investors with an interest rate cut or a dovish stance, the Pound could see further losses.

On the other hand though, a more hawkish BoE would boost UK economic rebound hopes and the Pound to US Dollar exchange rate would rise again.

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TAGS: Pound Dollar Forecasts