Brexit Jitters Keep GBP/USD Exchange Rate Under Pressure as May Meets With EU Leaders
UPDATE: As Theresa May met with EU leaders in an attempt to make the proposed Brexit deal more palatable to MPs Pound Sterling (GBP) remained under pressure.
While the Pound Sterling to US Dollar (GBP/USD) exchange rate picked up from yesterday’s twenty-month low the pairing struggled to find much headway, with a sense of uncertainty still prevailing.
Although UK wage growth data bettered forecasts, accelerating 3.3% on the year in the three months to October, this failed to offer the Pound any significant degree of support today.
Brexit Uncertainty Drives Pound Sterling US Dollar (GBP/USD) Exchange Rate to 20-Month Low
UPDATE: Confidence in Pound Sterling (GBP) crumbled this afternoon with the confirmation that Theresa May has indefinitely postponed Tuesday’s planned parliamentary vote on her Brexit deal.
Although the government looked set to experience a major defeat the decision to pull the vote still prompted investors to pile out of the Pound.
Spurred by this latest bout of political uncertainty the Pound Sterling to US Dollar (GBP/USD) exchange rate slumped to a fresh twenty-month low of $1.2555.
With support for Theresa May among MPs looking limited the odds of a fresh leadership challenge have picked up once again with the political landscape at risk of deteriorating into fresh chaos.
Unless EU leaders are willing to reopen negotiations over the withdrawal agreement the GBP/USD exchange rate could lose further ground in the days ahead as a sense of uncertainty mounts.
Soft UK Growth Weighs down Pound Sterling US Dollar (GBP/USD) Exchange Rate
After October’s UK gross domestic product reading revealed growth of just 0.1% on the month Pound Sterling (GBP) exchange rates came under fresh pressure.
Although this modest uptick represents an improvement on the previous two months of stagnation the growth remains significantly below the economy’s long-term average.
With growth looking decidedly limited at the start of the fourth quarter confidence in the outlook of the UK economy has naturally diminished.
Brexit-based uncertainty is likely to keep the economy under pressure in the months ahead, especially as MPs look set to reject Theresa May’s proposed Brexit deal in Tuesday’s crucial vote.
All in all, this has kept the Pound Sterling to US Dollar (GBP/USD) exchange rate on the back foot, even though its losses were still limited this morning.
Easing Federal Reserve Hawkishness Dents US Dollar (USD) Exchange Rates
While worries over the souring nature of US-China relations dampened market risk appetite, this failed to shore up the US Dollar (USD) at the start of the week.
In the wake of Friday’s weaker-than-expected headline non-farm payrolls figure USD exchange rates have struggled to find much in the way of support.
As US wage growth also showed some signs of easing, demand for the US Dollar diminished, with signs pointing towards the Federal Reserve leaving interest rates on hold for longer in 2019.
With Fed policymakers now adopting a less hawkish policy outlook the upside potential of USD exchange rates has deteriorated as markets lower the odds of future interest rate hikes.
GBP/USD Exchange Rate Vulnerable to Easing UK Wage Growth
Further weakness could be in store for Pound Sterling tomorrow, however, if October’s average weekly earnings data fails to impress.
Any signs of a slowdown in UK wage growth could weigh heavily on GBP exchange rates, with weaker wages giving the Bank of England (BoE) further incentive to leave interest rates on hold.
On the other hand, if the domestic labour market shows fresh signs of tightening the mood towards the Pound may improve.
Either way, Brexit-based developments will remain the key influence on the GBP/USD exchange rate in the days ahead.
A fresh bout of political jitters could easily drag the Pound lower across the board in the wake of the parliamentary vote on Brexit, especially if the odds of a leadership challenge or general election appear to increase.
Softening Inflation to Add to US Dollar (USD) Exchange Rate Weakness
However, demand for the US Dollar may weaken further this week in response to November’s US consumer price index data.
Forecasts point towards an easing in inflationary pressure on both the month and the year, with the monthly measure expected to show a stagnation.
This would build the case for the Fed to take a more gradual approach to monetary tightening in 2019, limiting the momentum of USD exchange rates.
Unless the headline inflation rate picks up and November’s advance retail sales figure escapes a slowdown the Pound Sterling to US Dollar (GBP/USD) exchange rate could find some traction ahead of the weekend.