GBP/USD Exchange Rate to Grow Increasingly Volatile in Final Week of Brexit Negotiations?

GBP/USD Exchange Rate Strengthens on Brexit Optimism

The Pound US Dollar (GBP/USD) exchange rate is ticking higher this morning, rallying on the back of some modest Brexit optimism.

At the time of writing the GBP/USD exchange rate is trading at around $1.2960, up roughly 0.3% from this morning’s opening levels.

Pound (GBP) Faces Choppy Week of Trade Ahead of Brexit Deadline

The Pound (GBP) faces the prospect of heightened volatility in the coming days as we enter the final week of UK-EU trade talks before the 15 October deadline.

While both sides have ‘agreed the importance’ of finding a post-Brexit trade deal and recent reports have pointed to positive progress, so far an agreement has proved elusive.

It’s thought that talks remain deadlocked on a couple of key issues, including rules regulating state subsidies as well as fishing rights.

As a result, the lingering risk of a no-deal Brexit will leave GBP exchange rates highly sensitive to headlines in the next few days, likely infusing further volatility into the Pound.

However, any downside in Sterling could prove limited given the apparent optimism that a deal could still be found at the eleventh hour, much like last year’s EU withdrawal deal.

There is also speculation that next week’s self-imposed deadline could easily be shifted if talks enter the so-called ‘tunnel’, in which negotiations are intensified.

Given the upside potential in the Pound, should a deal be found in the coming day or this ‘tunnel’ be entered then we can expect to see Sterling skyrocket, with the GBP/USD exchange rate likely to sustain a move above $1.32.

Election Uncertainty to Bolster the US Dollar (USD)?

Meanwhile, the outlook for the US Dollar is looking equally choppy as we hurtle towards one of the most contentious US elections in living memory.

With the final month of campaigning upended by Donald Trump’s coronavirus diagnosis, and concerns that the election could drag out well past 3 November, its likely we could see the US Dollar’s safe-haven appeal bolstered.

Mitul Kotecha, of Econometer.org, comments:

‘In what was already an election fraught with various issues, President Trump’s Covid infection has added another layer of uncertainty.

‘The US dollar ended last week firm and this trend is likely to continue given the uncertainty about events in the weeks ahead, which despite the fact that much of this uncertainty is US led, will still likely lead to some safe haven dollar demand.’