Pound US Dollar Exchange Rate Remains Weak but Recovers from Lows
Broad weakness in the US Dollar (USD) is making it easier for the Pound Sterling to US Dollar (GBP/USD) exchange rate to avoid deeper losses this week. However, with the fate of the Brexit process uncertain, the Pound (GBP) outlook is currently highly volatile.
Last week’s US Dollar weakness saw GBP/USD rise from 1.3314 to 1.3439 throughout the week. On Friday, GBP/USD even touched on a high of 1.3529 – the best level for the pair in two and a half years since mid-2018.
This week’s movement has been comparatively bearish though. GBP/USD touched on a fortnight low of 1.3236 yesterday. At the time of writing, GBP/USD trends near the level of 1.3359 – still almost a cent below the week’s opening levels.
The Pound could be in for even sharper movements in the coming sessions if the outcome of Brexit becomes clearer.
Pound (GBP) Exchange Rates Holding Ground but No-Deal Brexit Remains Real Possibility
Yesterday, the Pound plummeted as the weekend’s Brexit negotiations had not led to a deal. No-deal Brexit fears rose as UK and EU officials indicated a deal may not be possible if it is not reached by Wednesday.
With the end of this month marking the end of the Brexit transition period, the threat of a no-deal Brexit is a significant one.
Hopes that both sides ultimately want to reach a deal helped Sterling recover slightly. However, time is running out and a no-deal Brexit could become reality if a deal is not reached soon.
US Dollar (USD) Exchange Rates Continue to See Pressure on Recovery Hopes
The US Dollar is a safe haven currency. It is often stronger in times of market uncertainty.
However, this also means that when markets are becoming more optimistic the US Dollar often sees losses. Investors have been selling the US Dollar in recent weeks as they are more willing to take risks again.
Expectations that the global economy will recover from the coronavirus pandemic as vaccines continue to roll out are leaving the safe haven US Dollar unappealing.
One of the vaccines, by Pfizer, has begun to rollout in Britain today.
On top of rising vaccine hopes, safe haven demand is also being weighed by rising hopes that US Congress will be able to agree to fiscal stimulus program soon.
Pound US Dollar Exchange Rate Outlook Will Change Significantly on Brexit Outcome
Will the UK and EU be able to reach an agreement on Brexit before a perceived Wednesday deadline? Will talks somehow be extended further into December? Or will failure this week mean that a no-deal Brexit is inevitable?
There are still many huge uncertainties around the fate of the Brexit process. This is likely to dominate not just the Pound’s own movement, but the movement of Pound exchange rates in the coming sessions.
If a Brexit deal is actually reached, the Pound could surge higher in a relief rally. This would help it to climb back to around its best levels in years against the US Dollar.
On the other hand though, worsening no-deal Brexit fears could drag Sterling lower even against a weak US Dollar.
The US Dollar outlook remains fairly weak for now as well. The safe haven currency is unlikely to see much jump in demand as global hopes around coronavirus vaccines are likely to persist.
Key UK and US data is due on Thursday, but Brexit is likely to overshadow this for the Pound US Dollar exchange rate outlook.