As we hit mid-way in the trading week, the GBP/USD exchange rate has come into question for some investors. Recent developments between the UK and EU, as well as data releases from the United States are pointing the currency pairing towards bearish territory. Tensions between London and Brussels are leading the Brexit headlines as the UK pushes for a free trade deal agreement, but the EU remains firm on its requirements for the UK such as access for EU fishermen in UK waters. Added to this, the USD’s data releases have shown growth and the coronavirus outbreak has led to a higher demand for the safe-haven USD. However, could the UK’s positive streak of economic data help the currency stay afloat and making gains despite the pessimism?
Brexit Poses a Threat to the GBP as the UK and EU Battle It out in Negotiations
This week saw the opening of the UK-EU trade talks. Both parties laid out their agendas and the talks got underway. The UK highlighted that it strives to achieve a free trade agreement which would replicate that of Canada or Australia’s trade agreements. The UK’s firm stance on its demands as well as ruling out any chance of the UK abiding by EU laws has concerned investors and opened the door once more for a no-deal Brexit possibility. The thought of this no-deal has lowered the support for GBP over the course of this week. Investors in USD/GBP exchange rate will pay attention to any unfolding’s from the trade talks as a cue for a rise in the pairing should difficulties arise.
USD Looks Poised in a Strong Position After Gaining on the Back of Coronavirus Fears
As GBP wraps itself up in Brexit drama, USD is sitting pretty after a number of weeks of gains at the hands of the coronavirus outbreak. The worldwide panic surrounding the disease has led to an increased demand for USD as investors confide in the safe-haven currency until market risk appetite picks up once more. With no fresh news concerning the virus over the weekend, the market risk appetite has picked up a little but is set to remain on edge until fears surrounding the virus mute completely.
UK’s Services PMI Recorded as Highest Since September 2018
Despite the pessimism surrounding the outlook of GBP, its economic figures continue to churn out positive results. Yesterday saw the release of the UK’s construction PMI which beat expectations and this morning saw the release of the more important services PMI. The services PMI has been announced at 53.9 from 50.0 in December which beats the expectation of 52.9, marking the highest level in 16 months for the UK. Investors are concerned with the outlook of Brexit, but the economy appears to be headed in the right direction as today’s data release is one of a series of positive returns which the UK has experienced in 2020. The positive services PMI boosted GBP and saw it rise over 0.3% against the USD to 1.3064 this morning.
Looking ahead, later today will see the release of more important data releases from the US, which will have a significant impact on the GBP/USD exchange rate. The United States will also see its own services PMI later in the day as well as its composite PMI and non-manufacturing PMIs which are set to be vital for the US economic outlook. Attention will turn to these releases for any changes in the GBP/USD rate.
If you would like to learn more about factors influencing GBP/USD exchange rates for an upcoming currency transfer, feel free to contact myself, Jonathan Watson, using the form below.