Given the spectre of Brexit and the arduous negotiations currently been undertaken by the UK and the EU, it is hard to imagine the British pound (GBP) enjoying any kind of sustained rally against the U.S. Dollar (USD).
It is fair to say that the value of the USD has also depreciated in recent times, however, against a backdrop of growing geopolitical issues and President Donald Trump’s own economic convictions.
With both currencies struggling and trading in relatively narrow ranges, what does the near-term future look like for the GBP/USD currency pairing?
What is the Current Status of the GBP/USD?
At present, the GBP/USD pairing is trading around $1.289, which is relatively impressive given the fact that the pound plummeted to a 31-year low as recently as October when Theresa May announced her intentions to pursue a hard Brexit. This followed a rally in May and June, when the pound gained 0.8% against the USD as Donald Trump’s controversial Presidency began to trigger both domestic and international conflicts.
While the USD may have softened further with an announcement from the Federal Reserve suggesting that a further interest rate hike is likely in December, the GBP still cannot enjoy a concerted period of growth against the Dollar. The uncertainty created by Brexit is certainly restricting the trading range of the GBP, which lost some ground despite recording better than expected retail sales at the end of July. This highlights the challenge the pound, which simply cannot capitalise on the decline of the dollar or build any kind of sustainable growth.
This should not come as a total surprise, of course, as although the UK’s retail performance may have exceeded expectations, this is largely because it endured a smaller slowdown than most economists had initially predicted. Excluding fuel, sales growth in the UK declined from 0.9% to 0.5%, which was far more positive than the figure of 0.2% that had initially been forwarded by experts.
Beyond 2017: What Will the GBP/USD Pairing Bring in the Future?
While both currencies may be relatively soft and trading in unusually narrow ranges at present, there is no doubt that the GBP/USD pairing is more likely to incur losses than make gains in the near-term. Remember, pound sterling has already broken decisively below the 1.30 marker against the dollar, while it has even plunged below 1.20 on occasions during the last 14 months.
Additionally, there is far greater scope for the U.S. Dollar to enjoy growth in the current climate, with America benefiting from a stronger economy and an expected expansion in activity towards the end of 2017. In contrast, the GBP continues to look vulnerable, while some sanguine data releases hint that the British economy is braced for a period decline.
This was confirmed recently when the Bank of England (BoE) froze interest rates once again and lowered the nation’s growth forecast to 1.7%, with the situation likely to remain bleak at least until some clarity emerges from Brexit negotiations.
