Friday, 14 October 2016

GBP/USD exchange rate update

The GBP/USD cross has held around $1.22 for the second consecutive day, but fears over the future of the UK economy and the continued uncertainty surrounding the UK's exit from the European Union means the pound looks likely to struggle for the foreseeable future.

GBP/USD daily graph

Although the pound has edged away from the lows we witnessed last week, I don’t think this is the start of a Sterling rally. The pound is still being weighed down by concerns over Britain’s exit from the EU and the uncertainty is likely to increase in the build up to the Government triggering Article 50.
Yesterday's High Court hearing was a bid to give lawmakers more say over the countries exit, but with the timing and content still unclear, it is forcing investors to stay clear of the pound.
While the uncertainty remains it will be almost impossible for the pound to find any support and we could see the value of the pound fall even further in the coming months. Some forecasts are predicting the GBP/USD will fall as low as $1.15 by the end of 2016, with some banks suggesting we could even see the currency pair hit parity by March 2017.
I actually think parity is a little far-fetched, we have to remember the UK economy is still growing and continues to show its resilient side. Since the referendum result in June investors have been relentlessly selling off the pound but in my opinion they have oversold and is currently massively undervalued.
If we see the High court rule that Theresa May cannot trigger Article 50 without consulting Parliament then it could give the pound a huge boost. The issue for investors steamed from Theresa May's speech a few of weeks ago, when she said she would be pushing ahead with a “hard Brexit”.
A "hard Brexit" would see Britain give up access to the single market and investors believe it will have a severe impact of the future of the UK economy. However, if Theresa May is made to discuss the different options with her fellow lawmakers, it could lead to a softer approach to leaving the EU, and could see the pound regain some of the ground it has lost since the 23rd June.

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