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Brexit Uncertainties and Signs of US Economic Resilience Knock GBP/USD Gains

Last week’s high: $1.3188

Last week’s low:   $1.3012

 

GBP/USD Fails to Sustain Gains as Late-Week News Supports US Dollar Strength

For much of last week, the Pound to US Dollar exchange rate trended higher as investors reacted to hopes that the UK could edge towards a softer outcome for Brexit, while the US Dollar was sold off in reaction to signs of a slowdown in US economic data.

However, with the current EU Brexit date of the 12th of April rapidly approaching, demand for the Pound weakened towards the end of the week. This was despite Parliament taking fresh steps to prevent a no-deal Brexit from happening on Friday.

While US retail sales and non-manufacturing PMI data published earlier in the week, as well as higher risk-sentiment, made investors hesitant to buy the US Dollar at first, demand for the US currency rebounded towards the end of the week thanks to fresh weakness in the Pound and Friday’s US data.

Friday saw the publication of March’s US Non-Farm Payroll report, which revealed that more new jobs were created last month than expected.

While US manufacturing jobs fell and wages printed below expectations, the surprising rise in jobs made investors relieved about the US economic outlook overall.

 

USD Outlook: Focus on Brexit Delay as Friday Approaches

The US Dollar is a safe haven currency that benefits in times of global uncertainty, so if the Brexit process happens to end in no-deal this week, the Pound to US Dollar exchange rate would likely plummet.

A no-deal Brexit is still perceived as unlikely though, with analysts predicting that the government is more likely to push through a deal or accept the EU’s plan for a longer Brexit extension.

Investors are pricing in another delay to the Brexit process, but if a delay of around a year is confirmed it may not offer the Pound much relief as investors would remain anxious about further business uncertainty and the possibility of there being a general election.

Sterling is more likely to surge if the UK government is able to pass a Brexit plan through Parliament by the end of the week, but analysts perceive this as unlikely.

While GBP/USD will see major reaction to Brexit news and risk-sentiment, the US Dollar will also likely react to US inflation news and the Federal Reserve’s latest meeting minutes next week.

If upcoming US data surprises or influences the Fed outlook, the US Dollar could see a notable shift in movement.

 

 

Key Events

8th April

15:00 US Factory Orders

9th April

11:00 US NFIB Business Optimism

15:00 US JOLTs Job Openings

10th April

09:30 UK Trade Balance

09:30 UK Growth Rate

09:30 UK Construction Output

09:30 UK Manufacturing and Industrial Production

13:30 US Inflation Rate

19:00 US Federal Reserve Meeting Minutes

12th April

13:30 US Export and Import Prices

15:00 US Michigan Consumer Sentiment

 

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To keep up to date with the US Dollar, visit the USD blog in our Currency News section.

 

Alastair Archbold

Foreign Exchange Manager

aja@fcgworld.co.uk

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