Yesterday’s plummet in the US Dollar in reaction to Federal Reserve speculation was ultimately short lived, and the British Pound to US Dollar (GBP/USD) exchange rate is once again under pressure today. As Pound investors finally begin to face reality on upcoming Brexit negotiations and Federal Reserve rate cut speculation softens for now, there may even be further losses ahead for the pair.
Last week’s bearish GBP/USD movement ultimately saw the pair tumble from 1.3048 to 1.2957, while avoiding 2020 lows of 1.2859.
This week’s movement has been much more mixed, with GBP/USD briefly recovering yesterday before falling below the week’s opening levels again today. At the time of writing, GBP/USD is trending lower in the region of 1.2937.
GBP Exchange Rates See Pressure of Brexit Uncertainty Ahead of Next Week’s Negotiations
The Pound’s movement has been highly mixed this week so far. Finding little in the way of support from last week’s strong UK ecostats, the British currency has instead been driven by movements in rival currencies and market uncertainties over the Brexit process.
Weak Euro (EUR) and US Dollar movement briefly caused the Pound to surge yesterday, but those currencies are now strengthening again and the Pound has quickly shed yesterday’s advance attempts.
The Pound lacks solid support as its investors are becoming increasingly anxious about the next stages of Brexit.
The UK and EU will finally begin Brexit transition period negotiations next week. Talks will last for the remainder of the year, and analysts are doubtful that a full deal can be reached in such a short timeframe.
Optimistic comments from EU officials about a broad-ranging deal helped the Pound to advance yesterday.
However, anxiety over how negotiations will unfold in the coming months is setting in more strongly this week overall. As a result, the Pound’s attempts to advance have been limited and volatile.
On top of this, while the Pound has yet to be hit much by coronavirus fears, some analysts predict that it may only be a matter of time. According to Yohay Elam from FXStreet:
‘While the number of UK coronavirus cases is limited, a large group of Brits is confined to a hotel in Tenerife in the Canary Islands. If more UK nationals are confirmed to carry the virus, the Pound disease may eventually push GBP/USD lower.
Official Brexit talks kick off on Monday. While negotiators may compromise behind closed doors, the recent defiant rhetoric has been pushing the Pound lower.’
USD Exchange Rates Recover as Federal Reserve Rate Cut Bets Soften
Yesterday, the US Dollar plummeted across the board amid fresh speculation over the impact the coronavirus outbreak could have on the US economic outlook.
For a while, markets have been fairly confident that the US economy will be resilient to the impact of the coronavirus.
However, some began to speculate that as the Federal Reserve has more space to move on monetary policy, it may be pressured into cutting US interest rates as a result of the virus outbreak.
This led to Fed rate cut bets and a falling US Dollar yesterday.
Still, the rise in rate cut bets quickly softened again today. Relative confidence in the US economy from Fed officials kept investors hopeful that a rate cut was still not a done deal, and rate cut bets fell.
The US Dollar’s movement has softened as a result and performance has been more steady today. According to Peter Chatwell, Head of Mutli-Asset Strategy at Mizuho Bank:
‘The significant dovish tilt being priced in by markets from the FOMC may not materialize and that might cause the next leg of the Dollar rally,’
GBP/USD Exchange Rate Forecast: Key US Data May Sturdy Dollar Support
The Pound to US Dollar exchange rate has been volatile as Brexit and coronavirus uncertainties and developments drive movement.
However, with Federal Reserve rate cut speculation cooling and key US data due in the coming sessions, the US Dollar may have something a bit more solid to react to soon.
Tomorrow’s American session will see the publication of US growth rate projections for Q4 2019, as well as January durable goods orders stats. Pending home sales stats could also influence the US Dollar.
Even more key US data will be published on Friday. Personal Consumption Expenditure (PCE) inflation data could influence Fed speculation if it surprises. Wholesale inventories and Michigan consumer sentiment data is also due.
If the key US data disappoints investors it could cause Fed rate cut speculation to return and keep pressure on the US Dollar towards the end of the week.
This may be the only opportunity the Pound has to advance. Brexit uncertainties are likely to limit the Pound to US Dollar exchange rate’s appeal.
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TAGS: Pound Dollar Forecasts