Wednesday, 21 December 2016

GBP/USD exchange rates hold around $1.23

The GBP/USD exchange rate has been sitting in the $1.23's for the past twenty-fours hours, with the currency pair bouncing between $1.2320 and $1.2380.

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Although this morning's UK Public Sector Net Borrowing figures confirmed that government borrowing had fallen last month to £12.6 billion, the reading published by the Office for National Statistics did little to impact the value of the pound.

Why is the pound falling?

The last week has seen the pound lose around three per cent against the dollar, with the exchange rate dropping from $1.2725 to its current level of $1.2360.

GBP/USD one week graph

This has been largely down to the Federal Reserve (Fed) increasing interest rates last week, and announcing a possible three additional rate hikes next year. Markets had only been anticipating two hikes in 2017, so the Feds decision to announce of three has seen the dollar rise across the board.

Sterling has also been effected by continued talk of Brexit, with traders and investors still concerned about the long term economic impact and what type of approach Prime Minister Theresa May will take when negotiations finally get underway.


Will the pound rise next year?

At the moment I think it will be difficult for the pound to make any serious ground against the dollar while the uncertainty of Brexit is still hanging over the UK.

If the government opt for a softer approach to negotiations and the Supreme Court rule that parliament must have say in the exit strategy, then we could see some confidence return to the pound. However, a "Hard Brexit" could easily see investors start selling off the pound, which in turn could see the GBP/USD cross test the $1.20 levels we witnessed at the start of October.

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