British Pound to US Dollar Exchange Rate Trends near Weekly Highs Ahead of US Mid-Terms

Despite broad uncertainties about the Brexit process and a lack of fresh supportive UK data, the British Pound to US Dollar (GBP/USD) exchange rate tested its best weekly levels on Monday. Investors bought Sterling due to the latest Brexit hopes, while the US Dollar struggled to avoid losses ahead of Tuesday’s anticipated US Mid-Term Elections.

So far it appears that GBP/USD could sustain most of last week’s major gains. GBP/USD surged from 1.2826 to 1.2970. On Monday, GBP/USD touched on a two week high of 1.3053 and generally spent most of the day trending above the key 1.30 level.

The biggest cause of Pound movement on Monday was a weekend report claiming that the EU had offered a concession to the UK, regarding the issue of Ireland’s border.

The report, from the Sunday Times, claimed that the EU was willing to offer a UK-wide customs union deal. This would help Northern Ireland keep a soft border with both Ireland, in the EU, and the rest of Britain.

However, officials played down the validity of the report. One source from the UK government said that the UK government was ‘not sitting on a powder keg knowledge that we have signed a secret deal’.

A separate report from the Telegraph newspaper on Monday claimed that there were still many hurdles in the way of a completed UK-EU deal.

Despite these denials and continued anxiety about the possibility of a ‘no-deal Brexit’ from analysts, investors continued to buy the Pound amid speculation that a deal could be secured in the coming weeks.

Investors even brushed over Monday’s disappointing UK services PMI data from Markit.

Services make up most of Britain’s economic activity. Typically, news that UK services unexpectedly slowed to just 52.2 would weaken Sterling. However, investors remained too focused on Brexit developments.

Hopes for Brexit developments helped the Pound to advance against the US Dollar, which saw mixed movement on Monday.

US data continued to support the US Dollar. ISM’s non-manufacturing PMI from October was forecast to slow from 61.6 to 59.3, but instead only slipped to 60.3 showing that US economic activity was still impressively solid.

It followed last week’s US Non-Farm Payroll report, which saw more new US jobs created in October than expected.

However, investors were hesitant to keep buying into the already strong US Dollar ahead of this week’s major US developments.

Markets are anxious about Tuesday’s US 2018 Mid-Term Elections, and the Federal Reserve’s November policy decision set to be held on Thursday.

Both events could shift the direction of US Dollar trade if they surprise investors.

For the rest of the week, investors are likely to be focused on UK and US political developments, as well as the Federal Reserve’s policy decision on Thursday.

With the US mid-terms being held on Tuesday, a major congressional shift could impact US President Donald Trump’s fiscal policy plans.

For example, if the House of Congress shifts from Republican to Democrat majority, it could limit Trump’s ability to push through legislation. Some analysts speculate this could lead to US Dollar weakness.

Pound investors will be highly anticipating any potential developments in Brexit negotiations.

If there are any signs that a UK-EU Brexit deal is coming closer to becoming reality, the Pound to US Dollar exchange rate could be in for even further gains.