GBP/USD forecast: This is a major week for the pound to US dollar exchange rate as investors closely monitor the fallout from the UK’s Brexit plans and await further news on the US Government shutdown. This week could see some key developments in both issues, as well as others, to move the currency markets.
GBP/USD Forecast: The impact of Brexit outcomes
Firstly, the Brexit vote in Parliament will attract lots of headlines. Will we finally see some progress on Brexit? It seems it could get worse with more uncertainty before it gets better in my opinion. Expected to lose the vote, Theresa May will find herself in a very precarious position if she suffers a heavy defeat.
The pound seems likely to struggle to find favour although much of the weakness is priced into sterling, according to many reports. What could be more interesting is the news that Brexit might be postponed whilst the Article 50 period is extended. This might see the pound rising but if this is going to become an option, we would probably not know for a few weeks as MPs would need to vote on it.
There is also the prospect of a second referendum which would open a whole world of possibilities on exchange rates. The potential for sterling to rise may develop further if it is believed Remain would win, however the possibility of a firmer Leave vote may see sterling lower.
US Government shutdown causing uncertainty for USD
On the US dollar side there is a growing uncertainty surrounding the shutdown, now the longest in US history. Donald Trump is standing firm whilst nearly a million workers across the US are without pay, and the shortfall is starting to bite.
The shutdown is widely predicted to harm future US economic data releases and could see the pound making gains against a weaker US dollar. Markets have been predicting a US economic slowdown and recession, this event could easily be a trigger for future US economic weakness.
This week is looking like a potentially extremely volatile one for GBP/USD rates with the UK’s Brexit vote. There is also UK Inflation data plus US Retail Sales figures, both of which could cause some excessive volatility in the currency markets.
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