GBP/USD Exchange Rate Slides as Brexit Caution Drags on Sentiment
UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate has ceded ground today as markets become increasingly nervous regarding Brexit.
Despite claims earlier in the week that a Brexit deal was imminent, markets are becoming sceptical about the chances of an agreement being reached ahead of next week’s EU summit.
This comes as criticism from UK ministers of a potential open-ended customs agreement with the EU dampens hopes that Theresa May will be able to push through a deal.
Meanwhile the US Dollar is looking buoyant as the currency finds support from a bounce in global stock markets.
GBP/USD Exchange Rate Stalls as UK Ministers Apathetic Towards Brexit Deal
The Pound Sterling to US Dollar (GBP/USD) exchange rate is on the defensive today as UK ministers express concerns over compromises being made in order to push through a Brexit deal.
At the time of writing the GBP/USD exchange rate appears rangebound, with the pairing trading just below the three-week low struck overnight.
Pound Sterling (GBP) Muted on Brexit Uncertainty
The Pound (GBP) is treading water this morning as Theresa May faces a cabinet backlash over potential compromises being made to push through a Brexit deal.
May met with members of her cabinet on Thursday to gather support for a possible withdrawal agreement ahead of a key EU summit next week.
However the proposals being put forward failed to impress her cabinet, with ministers accusing the PM of making too many compromises.
The main focus appears to be on the possibility of the UK being stuck in a customs unions with the EU for an indefinite period of time in the effort to avoid a hard border in Ireland.
Fortunately for the Pound, the PM was able to avoid any resignations this time around, leading some GBP investors to maintain their optimism that a deal could be reached in the near future.
US Dollar (USD) Exchange Rates Rally, But Potential Political Uncertainty May Limit Future Gains
At the same time, the US Dollar (USD) is edging up this morning as the currency pares is losses after Thursday’s inflation driven slump.
This saw the Dollar Index (DXY) slide by around half a cent yesterday as weaker-than-expected US inflation caused markets to revise their Federal Reserve rate hike expectations.
Friday’s rally appears to be a reflection of market confidence in the US economy after an exceptional summer of growth, with most economists still confident that we will see multiple rate hikes from the Fed over the next twelve months.
However analysts warn that USD investors will become increasingly cautious over the next few weeks in the build up to the US mid-term elections, potentially limiting the upside to the US Dollar.
Derek Halpenny, European head of Global Markets Research at MUFG said:
‘We doubt the US Dollar will derive much further cyclical support through the remainder of the year. Political uncertainty could also undermine the dollar ahead of the mid-term elections on 6 November.’
GBP/USD Exchange Rate Forecast: Robust US Consumer Confidence to Aid the US Dollar?
Looking ahead, the Pound US Dollar (GBP/USD) exchange rate could come under some pressure later this afternoon following the publication of the latest US consumer confidence figures.
Economists forecast the recent strength seen in the US economy will prompt another upbeat response from US households this month, leading to a slight rise in the Michigan consumer sentiment index and possibly reflecting well on the ‘Greenback’.
Ultimately this is not expected to prevent the GBP/USD exchange rate from gaining this week however, with the pairing only likely to register notable losses today if the Pound is hit by any further negative Brexit headlines.