Pound Sterling to US Dollar (GBP/USD) Exchange Rate to End Week Softer Thanks to UK Politics

UPDATE: Although markets continue to expect a leadership challenge against Theresa May this has failed to stop the GBP/USD exchange rate pushing higher.

Even so, the GBP/USD exchange rate is still set to end the week significantly softer as a shadow of political unrest hangs over the UK outlook.

Weaker US Production Benefits Pound US Dollar (GBP/USD) Exchange Rate

UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate continued to consolidate its recovery this afternoon after US production data disappointed expectations.

As industrial production eased from 0.3% to 0.1% on the month this suggests that the US economy is increasingly feeling the pressure from global trade tensions.

This encouraged investors to continue to pile out of the US Dollar (USD) ahead of the weekend as confidence in the strength of the world’s largest economy took a hit.

Pound Sterling US Dollar (GBP/USD) Exchange Rate Takes Breather amid Brexit Uncertainty

Pound Sterling (GBP) recovered some ground this morning as investors took a temporary break from Brexit anxiety thanks to Theresa May’s display of resilience.

While the odds of a no-confidence vote in the Prime Minister have continued to mount, this has failed to prevent the Pound US Dollar (GBP/USD) exchange rate trending higher.

As Environment secretary Michael Gove ruled out a resignation this encouraged GBP exchange rates to stabilise, easing market concerns that May’s cabinet could shrink further.

However, the recovery of the Pound looks distinctly fragile due to the persistent sense of political unease and uncertainty that continues to hang over the UK.

As long as MPs continue to push back against the proposed Brexit deal the mood towards the Pound is likely to remain rather muted.

US Dollar (USD) Weighed Down By Underwhelming Jobless Claims Figures

After a disappointing increase in both initial and continuing US jobless claims the strength of the US Dollar (USD) was somewhat limited.

With the tightening of the US labour market starting to ease USD exchange rates struggled to find fresh upside potential, even in the face of European political jitters.

Comments from Atlanta Fed President Raphael Bostic put additional pressure on the US Dollar as he cautioned against a fast pace of monetary tightening.

Bostic’s belief that interest rates are ‘not too far’ from neutral suggests that the central bank may take a less aggressive approach to monetary policy in 2019, to the detriment of the US Dollar.

Resilient Industrial and Manufacturing Production May Boost USD Exchange Rates

However, demand for the US Dollar could pick up this afternoon if October’s industrial and manufacturing production data proves positive.

As long as the US economy demonstrates signs of resilience USD exchange rates are likely to remain supported by the prospect of a December Fed interest rate hike.

On the other hand, signs of a slowdown could put fresh pressure on the US Dollar ahead of the weekend.

Any softening in production may point towards the US economy feeling the negative impact of increased protectionism and the trade spat with China, diminishing the prospect of a stronger economic performance in the fourth quarter.

Political Anxiety Set to Keep Pound Sterling (GBP) Under Pressure

Looking ahead to next week, the Pound is likely to remain on the back foot as a result of domestic political anxiety.

Unless there are signs of increased support for May’s Brexit deal the GBP/USD exchange rate looks set to continue trending in the region of its recent lows.

If Theresa May’s position as prime minister is further undermined the appeal of the Pound is unlikely to significantly improve, even if investors take advantage of its weakness to buy back in.

Until the issue of Brexit ceases to hang over the UK the Pound Sterling to US Dollar (GBP/USD) exchange rate may struggle to erase Thursday’s sharp slump.

Hannah Wilson

Contact Hannah Wilson