Pound to US Dollar forecast: Volatility expected for GBP/USD exchange rates

GBP USD Exchange Rate: The Week Ahead October 24th

Pound to US dollar exchange rates have increased by around 5.5% over the last 2 weeks due to the developments in Parliament. UK Prime Minister Boris Johnson defied the odds by renegotiating a deal with the EU, however that deal failed to be voted on by UK politicians due to the Letwin amendment. In addition, Boris Johnson was force to ask for a Brexit extension and We now await news from the Europeans on whether they will agree.

What could happen next with Brexit?

PM Boris Johnson may not be able to get a Brexit deal over the line by the 31st, therefore there could be two alternative routes on the table. Firstly, the EU approve a small extension, which gives Boris time to get his deal through Parliament. Secondly, the EU approve an extension and then Boris pushes forward with a general election, which would be expected to be agreed to by most political parties. Lastly leaders of certain member states within the EU disapprove of an extension and the UK crashes out without a deal.

Pound to US Dollar forecast: Could we be heading for a general election?

Forecasters expect a crash out Brexit to cause major problems for sterling with pound to US dollar exchange rates potentially falling to record lows. However, this looks unlikely at this stage as key EU officials have already stated they believe there should be an extension. Therefore, if we are heading for an extension, a general election looks the most likely outcome. History would tell us that an election could cause problems for the pound, however this is no normal election. In some ways it’s an election to sort Brexit, therefore voting patterns could be skewed.

For clients that are purchasing US dollars, the spike we have seen over the last 2 weeks is great news, nevertheless anything could happen in the coming weeks that could potentially cause fluctuations. As a deal is unlikely in the near future, I find it difficult to see how the pound will continue its march forward but the closer we get to leaving without a deal could see the pound fall back to the lows we were experiencing in the summer. If you are weighing up risk and reward, it doesn’t appear that the UK pound is out of the woods just yet.

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