With the likelihood of a deal between the UK and EU looking more likely after Michel Barnier’s statement, as well as there being stronger demand for “safe haven” currencies, the pound to US dollar exchange rate hasn’t fallen far from its best levels and remains above the key level of $ 1.300.
The primary reason for the pound’s surge this week has been comments from EU Chief Negotiator Michel Barnier, who said the EU was willing to offer the UK a close partnership the likes of which would be unprecedented for a non-EU country.
However, the Sterling rally promptly fizzled out as Barnier went on to state that the EU was still preparing for a possible no-deal Brexit.
Despite this, the pound did not shed much of its strength and looks on track to hold onto its gains.
Jeremy Stretch, currency strategist at Canadian Imperial Bank of Commerce, said about Barnier’s comments: “The language used yesterday is not materially different from that used last week; that to me suggests we are witnessing a market looking for a reason for a short squeeze.”
The US dollar’s bearish streak may prove to be short-lived as concerns that US-China trade tensions could be about to worsen again have left investors hesitant to take risks and therefore more willing to pile into the dollar.
The latest US data helped support the US dollar too, as July’s Personal Consumption Expenditure (PCE) price index printed higher than expected year-on-year.
Ultimately, this meant GBP/USD was unable to climb much higher, but broad-based pound support prevented the pair from shedding its gains either.
The pound to US dollar exchange rate is on track to end the week near the level of $ 1.300 for the first time since the beginning of the month, but Brexit developments could knock the pair lower again.
UK Brexit Minister Dominic Raab will be holding talks with Barnier on Friday, so any notable developments in negotiations have the potential to strongly influence Sterling.
Brexit developments and risk-sentiment will remain key influences for the pound to US dollar exchange rate, but next week’s PMI data could also prove influential, with Britain’s key services PMI being published on Wednesday.
Meanwhile, US manufacturing PMI data will come in on Tuesday, followed by the non-manufacturing PMI on Thursday. The week will be rounded off by August’s US Non-Farm Payroll report.