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