Pound Sterling to US Dollar (GBP/USD) Exchange Rate Drops as Concerns Over May’s Brexit Plan Mount

Brexit Worries Weigh Heavily on Pound Sterling US Dollar (GBP/USD) Exchange Rate

UPDATE 2: The Pound Sterling to US Dollar (GBP/USD) exchange rate slumped sharply on Friday morning in response to the suggestion that Theresa May’s Brexit proposals could jeopardise a potential UK-US trade deal.

This spooked investors, raising the risk of a leadership challenge against May as dissent amongst Brexiteers continues to build, leaving Pound Sterling (GBP) vulnerable to further losses.

If the prospect of a softer form of Brexit appears to diminish this could see the GBP/USD exchange rate extend its slide over the coming days.

Cable (GBP/USD) Exchange Rate Benefits From Increasing Worries Over Impacts from US-China Trade War

UPDATE: If the US trade deficit is found to have widened on the month, this could see USD exchange rates extending their downtrend tonight.

Once it becomes clear how China will retaliate to the latest proposed US tariffs worries over the outlook of the US economy could increase, with inflationary pressure already looking set to push higher in the months ahead.

Further Pound Sterling US Dollar (GBP/USD) Exchange Rate Volatility Likely on US Budget Statement

Ahead of this evening’s US monthly budget statement the Pound Sterling to US Dollar (GBP/USD) exchange rate continued to recover ground,

However, as forecasts point towards a narrowing of the budget deficit in June this could see the US Dollar (USD) return to a stronger footing overnight.

Any narrowing of the deficit is likely to encourage confidence among investors, in spite of lingering uncertainty over the impact of the Trump administration’s trade policies.

Pound Sterling US Dollar (GBP/USD) Exchange Rate Climbs as US Inflation Outpaces Wages

A fresh uptick in the US consumer price index was not enough to prevent the Pound Sterling to US Dollar (GBP/USD) exchange rate gaining ground on Thursday.

While the headline CPI climbed to 2.9% on the year, hitting a six-year high, this failed to galvanise much additional support for the US Dollar (USD).

The figure saw inflation outpacing wage growth in June, with average weekly earnings having risen 2.7% in the same month.

As the escalating trade dispute with China is expected to push prices still higher over the coming months US households look set to come under increased pressure.

Although this paves the way for the Federal Reserve to raise interest rates at a faster pace, this prospect did not offer any encouragement to USD exchange rates.

GBP/USD Exchange Rate Gains Ground in Spite of Brexit White Paper Misgivings

While an element of political uncertainty continues to hang over the UK the Pound Sterling to US Dollar (GBP/USD) exchange rate began to recover some of its lost ground.

Market reaction to Theresa May’s Brexit white paper proved a little muted, with the Conservative party still clearly divided over the proposals.

This keeps the threat of a potential leadership challenge alive, something which could have a significant dampening effect on Pound Sterling (GBP).

Even so, after a better-than-expected RICS house price report and with the economy demonstrating signs of resilience GBP exchange rates still found support on Thursday.

Trade War Worries Limit GBP/USD Exchange Rate Downside

If the Chinese response to the Trump administration’s latest tariffs materialises we could see further support for the Pound Sterling to US Dollar (GBP/USD) exchange rate with the threat of a deepening trade conflict potentially dragging the US Dollar lower.

Even though market risk appetite is likely to diminish this may not offer much of a boost to USD exchange rates, given market concerns over the US outlook.

A weaker University of Michigan consumer sentiment index could put additional pressure on the US Dollar, with forecasts pointing towards a decline in confidence.

Pound Sterling US Dollar Exchange Rate Forecast to Benefit from Rising UK Inflation

Looking ahead to next week, the Pound Sterling to US Dollar (GBP/USD) exchange rate is likely to see some volatility in anticipation of the latest UK consumer price index data.

If inflationary pressure picks up as forecast this would improve the odds of the Bank of England (BoE) raising interest rates in August, thus shoring up the Pound.

As long as markets remain confident that the BoE is on track to tighten monetary policy the downside potential of GBP exchange rates should remain limited.

On the other hand, another dip in price pressures could encourage investors to pile out of Pound Sterling once again.

Either way, the Pound Sterling to US Dollar (GBP/USD) exchange rate is likely to see some sharp movement in the wake of Wednesday’s data.

Hannah Wilson

Contact Hannah Wilson