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GBP/USD Falls Back from Best Levels as Investors Seek ‘Safe Havens’

Last week’s high: $1.3038

Last week’s low: $1.2834

Brexit Speculation Leads to Big GBP/USD Gains despite ‘Safe Haven’ Demand

Despite a late-week boost for the US Dollar, the Pound to US Dollar exchange rate put in significant gains last week and saw its second consecutive weekly advance.

Comments from EU Chief Negotiator Michel Barnier that the EU was willing to offer the UK an unprecedentedly close partnership for a non-EU country led to a surge in Pound demand in the middle of the week, and GBP/USD sustained most of those gains.

However, towards the end of the week the Pound weakened as US Dollar demand rose, leaving GBP/USD sliding slightly from its best levels on Friday afternoon. Sterling was unable to hold on as analysts reminded investors that the EU was still preparing for a possible ‘no-deal’ Brexit.

Meanwhile, the US Dollar saw stronger performance on Friday due to rising demand for ‘safe haven’ currencies amid the latest global trade uncertainties.

Speculation that the US and Canada would not be able to reach an agreement on trade by the end of the week, threats from US President Donald Trump that the US could pull out of the World Trade Organisation (WTO), as well as worsening trade tensions between the US and China, left investors seeking out safer currencies like the US Dollar.

USD Outlook: Political Developments Could Push Pound Lower Versus US Dollar Again

While the Pound did see strong gains against the US Dollar last week, its Friday tumble showed that Sterling remains volatile – and that the US Dollar remains the currency of choice for investors seeking ‘safe havens’.

As a result, the Pound to US Dollar exchange rate has the potential to shed even more of its recent gains in the coming week. It will depend largely on how Brexit news develops, as the pace of UK-EU negotiations are expected to pick up until a deal is reached.

If there are more signs that UK-EU negotiations are seeing progress, the Pound to US Dollar exchange rate could actually resume its rally.

On the other hand, if ‘no-deal’ Brexit fears rise again the Pound could tumble. The Pound is even more likely to fall if investors continue to find ‘safe haven’ currencies like the US Dollar appealing amid global trade uncertainties and tensions. US-China trade tensions are expected to flare up again, for example.

As well as Brexit and trade developments, upcoming UK and US data could influence GBP/USD.

Britain’s August manufacturing PMI will be published today, followed by the US manufacturing PMI tomorrow. Britain’s services PMI will come in on Wednesday, with US non-manufacturing PMI data due on Thursday. Friday will round off the week with the anticipated August US Non-Farm Payroll report.

 

Key Events

3rd September

09:30 UK Manufacturing PMI

4th September

09:30 UK Construction PMI

15:00 US Manufacturing PMI

15:50 US Construction Spending

5th September

09:30 UK Services and Composite PMI

13:30 US Trade Balance

6th September

13:15 US ADP Employment Change

15:00 US Factory Orders

15:00 US Non-Manufacturing PMI

7th September

09:30 UK Consumer Inflation Expectations

13:30 US Non-Farm Payrolls

 

Arron Morris
Currency Trader
adm@fcgworld.co.uk

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