Pound to US Dollar Exchange Rate Slumps after Dovish BoE Commentary

GBP/EUR Exchange Rate – Irish Border Issue Remains Key Obstacle for Pound Outlook

Brexit-based jitters picked up after Downing Street once again ruled out the possibility of the UK remaining within the customs union after leaving the EU.

As the Irish border issue still looks no closer to being resolved the appeal of the Pound was naturally limited, with investors seeing no particular cause for optimism.

The latest public sector net borrowing data, however, showed that government borrowing had fallen to its lowest level since 2007 in the last financial year, helping to shore up GBP exchange rates.

A weakening of the BBA loans for house purchase figure may hamper the Pound, though, as confidence in the underlying health of the UK economy remains rather mixed.

GBP/USD Exchange Rate – Surprisingly Dovish BoE Comments Dented Odds of May Rate Hike

Unexpectedly dovish comments from Bank of England (BoE) Governor Mark Carney have also weighed on GBP exchange rates in recent days.

As Carney opted to talk down the prospect of a May interest rate hike this has rattled investors who had been pricing in high odds of an imminent move.

If UK data continues to disappoint this is likely to give the BoE further incentive to leave interest rates on hold for longer, limiting the appeal of the Pound.

With the UK gross domestic product forecast to see a downward revision from 0.4% to 0.3% in the first quarter this could put significant pressure on GBP exchange rates ahead of the weekend.

USD/GBP Exchange Rate – Rising Bond Yields Benefit US Dollar

Rising US Treasury yields have helped to boost US Dollar (USD) exchange rates this week, with the 10-year yield rising above three percent for the first time in over four years.

This suggests that markets remain generally confident about the prospect of the Federal Reserve continuing to tighten monetary policy over the coming months.

A surprise uptick in April’s US consumer confidence index offered the US Dollar further encouragement on Tuesday, especially as global tensions have continued to ease.

Friday’s annualised gross domestic product data could knock USD exchange rates off their bullish run, however, if the US economy is found to have lost momentum in the first quarter.

While any slowing of growth is unlikely to deter the Federal Reserve from pushing ahead with further monetary tightening a weaker showing could still limit the upside potential of the US Dollar.

EUR/USD Exchange Rate – ECB Forecast to Maintain Dovish Outlook at April Meeting

While the Eurozone composite PMI bettered expectations to hold steady at 55.2 in April this failed to encourage much confidence in the Euro.

Although both France and Germany continued to experience solid growth on the month this was not the case for the wider currency union, where growth fell to an eighteen-month low.

As the latest German IFO business sentiment survey also proved rather underwhelming, with the expectations index weakening further than forecast, EUR exchange rates struggled to find traction.

Demand for the single currency could weaken further in the wake of the European Central Bank’s (ECB) April policy meeting.

If ECB President Mario Draghi maintains a more dovish tone on the subject of monetary policy this is likely to encourage another round of Euro selling.

Hannah Wilson

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