Both the Pound and US Dollar weakened today, ending the week with a jittery note for the British Pound to US Dollar (GBP/USD) exchange rate. Investors may be more likely to buy the pair in the coming weeks though as UK and US political uncertainties clear up.
Since opening this week at the level of 1.2915, GBP/USD has been trending with an upside bias.
After a surge in demand earlier in the first half of the week, GBP/USD touched on a high of 1.3169. This was the best level for GBP/USD in a month and a half, since the beginning of September.
While GBP/USD did slide back from these highs towards the end of the week, the pair remained well above its opening levels as Sterling sustained gained. At the time of writing on Friday afternoon, GBP/USD trended in the region of 1.3020 - still above the key 1.30 level.
The Pound was able to sustain gains this week as Brexit hopes rose. UK officials agreed to continue UK-EU Brexit negotiations after fears that Britain would walk away from talks.
With both sides eager to continue negotiations, it boosted market optimism that some kind of deal was more likely than no deal. Both sides reportedly expect a deal by mid-November, and this optimism has caused big Pound gains this week.
Sterling’s appeal was dampened slightly at the end of the week by underwhelming UK services PMI results. Overall though, mixed strength in the US Dollar made it easier for GBP/USD to avoid major losses before markets closed.
The US Dollar has seen some benefit from market safe haven demand this week.
As the second US 2020 Presidential Debate was more typical than the first chaotic debate, speculation of a tight election next month rose. This caused uncertainty and safe haven demand to rise.
However, safe haven demand remained limited overall, as it was contrasted with reports claiming noteworthy progress in coronavirus treatments. This kept market sentiment fairly buoyant.
The US Dollar was unable to benefit much from US PMI data as manufacturing data fell short of expectations. As a result, the US Dollar was too jittery to mount a stronger recovery against the Pound at the end of the week.
Looking ahead to next week, GBP/USD is only likely to become even more focused on political developments.
There isn’t much notable UK data due for publication next week, so Brexit developments will be the focus for Pound investors.
If UK-EU Brexit negotiations show signs of progress or bets of a deal rise, the Pound could be in for further gains, especially if the US Dollar is weakened by risk-on movement.
The US may not have much reason to advance unless US political uncertainty notably worsens and leads to a rise in safe haven demand. As a result, there is plenty of potential for GBP/USD to rise.
Still, as the US 2020 Presidential Election draws ever closer the chances of market uncertainty rising are quite high overall. This is more likely to drive US Dollar movement than next week’s US growth rate report
Overall, potential political developments are only likely to become more influential for the Pound to US Dollar exchange rate as November approaches.