GBP/USD Exchange Rate Slipping as Markets Take a Breather on USD Selloff
The Pound Sterling to US Dollar (GBP/USD) exchange rate fell back slightly from its best levels in years today. Investors paused on the recent US Dollar (USD) selloff, helping it to recover a little against a volatile Pound (GBP).
At the beginning of the week, GBP/USD trended at the level of 1.3227. However, GBP/USD quickly rebounded and clawed back all the previous week’s losses.
Largely due to broad US Dollar weakness, GBP/USD touched on a high of 1.3620 near the end of the week. This was the best GBP/USD level in two and a half years, since mid-2018.
GBP/USD has since calmed from those highs slightly. At the time of writing on Friday, GBP/USD is trending in the region of 1.3525.
However even if the US Dollar keeps recovering some of its recent losses, a successful Brexit deal could be a big boost to the Pound to US Dollar exchange rate outlook.
Pound (GBP) Exchange Rates Volatile as Brexit Outcome Could be Days Away
For much of the past week, investors bought the Pound on hopes that a Brexit deal was close.
However, progress in UK-EU negotiations has reportedly been slow. Towards the end of the week, markets sold Sterling from its best levels as fears that a no-deal outcome was still possible concerned investors again.
On Friday, EU Chief Brexit Negotiator Michel Barnier said that there was very little time left to negotiate a deal. He said:
‘Brexit talks have a narrow path to an agreement.
There is very little time left in Brexit trade talks.
The obstacles for UK trade agreement remain large.’
With deal and no-deal outcomes still possible, the Pound outlook is filled with uncertainty.
US Dollar (USD) Exchange Rates Edge Away from Worst Levels
After weeks of bearish performance and losses, the US Dollar recovered slightly today.
Safe haven currencies remain unappealing on an improved global recovery outlook, but investors are buying the US Dollar from its cheapest levels.
Analysts expect the US Dollar to keep weakening overall though, so today’s recovery is likely limited. According to Analysts at MUFG:
‘The announcements this week certainly reinforce the prospects of loose monetary conditions and favourable risk asset performance, which led by the Fed will keep the US Dollar on a weakening path,’
Pound US Dollar GBP USD Exchange Rate Could Rocket if Brexit Deal is Reached
While the Pound to US Dollar exchange rate is trending relatively closely to its best levels in years, the US Dollar’s potential for recovery may be limited.
Analysts believe the US Dollar will remain weak as global market sentiment gradually improves on coronavirus vaccine and recovery hopes.
This means that if there is an optimistic outcome to Brexit, GBP/USD could surge even higher as the Pound outlook would rise.
If a UK-EU Brexit deal is reached and officials are able to pass it into law, much of the Pound’s downside risks would evaporate.
On the other hand though, a Brexit deal failing to be reached in time would cause no-deal Brexit fears to surge, which would make it easier for the US Dollar to recover some ground.
Next Tuesday’s UK and US growth rate results are likely to be overshadowed by Brexit news for the Pound to US Dollar exchange rate.