The pound has risen against the US dollar as investors become more hopeful of a breakthrough in the dialogue between the Labour and the Conservative Party over the EU Withdrawal Bill.
GBP/USD exchange rate
This optimism helped the GBP/USD exchange rate rise to over 1.31 last week and we are currently seeing the level remain at this attractive position as we await further news on which direction Brexit talks will lead. The optimism is however fragile at best since there is not a huge amount of room for common ground, the poor showing by both parties at the UK local elections has seen expectations of an agreement increase.
Signs that global economy is growing
Friday was also an important time for the pairing with the latest Nonfarm payroll data, which showed more jobs being created in the US. This has helped fuel speculation that the global economy will continue to grow and encouraged investors to take up positions elsewhere, seeing a small sell off on the US dollar. The US dollar is a safe haven currency and in times of global optimism can weaken as investors seek to invest in more risky assets like stocks, safe in the knowledge if the US economy is performing well, it will help the global economy.
US unemployment is currently at the lowest since 1969, reflecting the underlining strength in the US economy. The US Federal Reserve Bank has confirmed it will be in a wait and watch mode, awaiting further news on the economy before committing to any policy changes. This good news in the Labour market further supports the view that the interest rates will probably remain on hold for the time being and that stocks and other ‘riskier’ assets will only strength more (and at a higher pace than the US dollar), in the future.
Pound to US dollar forecast: Will the pound lose value in May?
GBP/USD levels could now push higher if there is added confidence of a Brexit breakthrough but I would not be holding my breath. I feel that with trading levels back over 1.30 on the interbank rate, the time is right to capitalise for US dollar buyers with pounds, as there seems a strong likelihood that the pound is not out of the woods yet and could lose value once again if the recent optimism fades.
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