Pound to US Dollar (GBP/USD) Exchange Rate Rises as UK-EU Brexit Trade Deal Hopes Return

GBP/USD Exchange Rate Edges Higher as UK-EU Brexit Talks Resume on Tuesday
The Pound to US Dollar (GBP/USD) exchange rate rose by 0.6% today, with the pairing currently trading around $1.283.

Sterling rose against the US Dollar (USD) today as hopes of a Brexit deal have buoyed confidence in the UK economy. This follows reports that formal negotiations on a post-Brexit UK-EU trade deal are due to resume tomorrow.
Mohit Kumar, an analyst at Jefferies, explains:

‘The last scheduled talks between the UK and Europe start this week and if there is to be an agreement by 15th October, then positive breakthrough should happen before end of the week.’

‘We are hopeful that a last minute deal would be reached, but the negotiations have become complicated following the recent UK Internal Markets bill, which is likely in breach of international law.’

However, the outlook for Britain’s economy remains subdued as the number of Covid-19 cases continues to rise throughout the UK. Today also saw reports that a second Covid-19 wave could provide a ‘knockout punch’ for the nation’s high street.

Meanwhile, there’s been talk of the Bank of England (BoE) potentially taking its interest rates into negative territory.

Silvana Tenreyro, one of the bank’s key rate setters, said that the ‘evidence had been encouraging’ regarding how effective negative interest rates would be for the British economy.

Consequently, this has sparked concern for Sterling investors as the outlook for the economy continues to deteriorate.
US Dollar (USD) Sinks as Safe-Haven Demand Eases as Chinese Economy Recovers
The US Dollar (USD) suffered from a sell-off of safe-haven currencies today following China’s steady economic recovery. August saw China’s manufacturing companies post a growth for the fourth consecutive month, buoying optimism in the world’s second-largest economy.

Stephen Innes of AXIcorp commented:

‘Profits of China’s major industrial firms remained on the steady path to recovery in August. Indeed robust earnings in China’s colossal production and operations engines provided further evidence of a strong economic comeback.’

‘The data augers well for the China growth story and the outlook for commodity prices.’

In US economic data, today will see the publication of September’s Dallas Fed Manufacturing Business Index. Any signs of improvement could boost the US Dollar.

Meanwhile, the USD will remain sensitive to global risk sentiment. If the number of Covid-19 infections continue to increase worldwide, then safe-haven demand for the ‘Greenback’ will swiftly return.

GBP/USD Forecast: Could Brexit Deal Hopes Continue to Buoy Sterling This Week?
Pound (GBP) investors will be eyeing tomorrow’s speech from Andrew Bailey, the Bank of England’s Governor. Any dovishness about the British economy – or comments about the rising Covid-19 infections and Brexit – could spark concern for the months ahead and drag down Sterling.

In UK economic data, tomorrow will see the release of August’s Mortgage Approvals figure. If this shows any marked increase, then GBP could rise.

Meanwhile, USD investors will be awaiting tomorrow’ speeches form several presidents and members of the US Federal Reserve.

Any dovishness about the American economy, however, could boost safe-haven demand for the ‘Greenback’.

The GBP/USD exchange rate could drop this week if the UK’s economic outlook continues to deteriorate. However, if hopes of a Brexit deal continue to rise, then Sterling will retain its upward trajectory.