2 and a Half Year Best for Pound to US Dollar Exchange Rate despite Jittery Brexit Outlook

Pound to US Dollar Exchange Rate Advances despite No-Deal Brexit Fears 

Broad weakness in the US Dollar (USD) is making it easier for the Pound Sterling to US Dollar (GBP/USD) exchange rate to advance today. The Pound (GBP) has been able to sustain gains despite the persisting possibility of a no-deal Brexit. 

Since opening this week at the level of 1.3314, GBP/USD has been trending with an upside bias. 

While no-deal Brexit jitters limited the Pound’s gains, the US Dollar’s weakness ultimately made it easier for GBP/USD to touch new highs. 

Yesterday, GBP/USD touched on a high of 1.3498. This was the best level for GBP/USD since April 2018, over two and a half years ago. At the time of writing on Friday, GBP/USD trends just below those best levels. 

Some analysts believe the US Dollar has even further to fall, as the global market outlook improves. 

Pound (GBP) Exchange Rate Gains Limited as Brexit Uncertainty Persists 

UK-EU Brexit negotiations continue as December draws on. There is now under a month until the end of the Brexit transition period, and uncertainty is rising over whether or not the UK and EU will be able to agree a Brexit deal on time. 

Markets still expect a Brexit deal will be reached, but bets are falling as talks get closer and closer to the wire. 

Some analysts speculate that the UK and EU could keep negotiating even if Britain crashes out with no deal at the end of the month. This possibility is keeping the Pound jittery. 

Today’s UK construction data did little to boost Sterling. The PMI beat forecasts, but there are concerns about how many jobs are being lost. According to Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply: 

‘In a bid to dampen down the effects of the sharpest rise in input costs since April 2019, builders were reducing headcounts to keep their own heads above water leading to another fall in job numbers.’ 

US Dollar (USD) Exchange Rates Continue to Tumble on Global Recovery Hopes 

The US Dollar continues to see broad weakness. Over the past week, it has seen its worst losses in a month as markets sell safe havens. 

The safe haven US Dollar is less appealing as investors become more optimistic about the global recovery outlook. 

Positive news around coronavirus vaccines, as well as hopes for US fiscal policy, are making investors more willing to take risks again. This is keeping the US Dollar weak. 

Analysts at MUFG said: 

‘It has been another bad week for the US Dollar, 

It will encourage speculators to rebuild short US dollar positions which have been pared in recent months.’ 

Pound to US Dollar (GBP/USD) Exchange Rate Gains May be Limited without Brexit Progress 

If the US Dollar continues to tumble on market risk sentiment, the Pound to US Dollar exchange rate could keep rising higher. 

However, if there are no optimistic Brexit developments soon, the Pound’s gains may be limited. In fact, if a no-deal Brexit becomes perceived as more likely, the Pound could shed some recent gains against the US Dollar. 

Even amid broad US Dollar losses, the Pound has a lot of downside risk and would plummet in the event of a no-deal Brexit. 

Still, markets expect a deal is more likely than no-deal. Progress in a deal could keep GBP/USD climbing, especially if the US Dollar sees no fresh support. 

Next week’s US data includes wholesale sales and inflation rate stats. Amid a less influential economic calendar, the US Dollar is unlikely to see fresh strength without a shift in safe haven movement. 

Overall, assuming Brexit negotiations progress, the Pound to US Dollar exchange rate outlook has potential to be even higher.