Pound Sterling to US Dollar (GBP/USD) Exchange Rate Continues Slide on Stronger US Industrial Production

Pound to US Dollar Exchange Rate Sheds Most of the Week’s Recovery Attempt

UPDATE: The Pound to US Dollar (GBP/USD) exchange rate is on track to end the week closer to its worst levels, as Brexit jitters keep pressure on Sterling (GBP) while the US Dollar (USD) benefits from US data.

Friday saw the publication of US retail sales, industrial and manufacturing production and Markit’s December PMI projections.

While retail sales met expectations and Markit’s PMI projections fell short in December, November industrial production was stronger than expected.

The data helped to support the US Dollar, which was already strengthening on the back of weaker performance from rivals like the Pound and the Euro (EUR).

Pound to US Dollar (GBP/USD) Exchange Rate Slides as US Dollar Demand Rises on Rival Weakness

After a mid-week recovery attempt, the Pound Sterling to US Dollar (GBP/USD) exchange rate is on track to end the week lower. The US Dollar (USD) has benefitted from weakness in rivals, allowing it to capitalise on the Pound’s (GBP) ongoing Brexit turmoil.

Since opening the week at the interbank level of $1.27. GBP/USD was trending with a downside bias close to its lowest levels of 2018 in the middle of the week.

A brief recovery attempt was short-lived, as Friday saw the Pound weakening and the US Dollar strengthening again, leaving GBP/USD on track to shed over a cent throughout the week.

A long week of complications in UK Brexit politics have not ended with any new clarification or certainty for markets, leaving the embattled Pound looking unappealing.

US Dollar rivals, including the Pound, Euro (EUR) and Chinese Yuan (CNY), weakened on political and economic concerns, making it easier for the safe haven US currency to firm.

Pound (GBP) Exchange Rates Tumble as UK Prime Minister Fails to Acquire Brexit Deal Assurances

At the beginning of the week, UK Prime Minister Theresa May announced that she would delay an anticipated parliamentary vote on her negotiated UK-EU Brexit withdrawal deal.

This was done so May could return to Brussels and attempt to secure assurances and potentially even concessions regarding the contentious issue of the Ireland backstop plan – in order to make the deal more appealing to backbenchers in her Conservative Party.

Despite surviving a no-confidence vote from her party in the middle of the week, May returned home on Friday having failed to get anything out of EU officials in the way of assurances or concessions.

Essentially, it meant the government was left with a highly unpopular deal that had very little chance of passing through Parliament. This left Sterling (GBP) limp on Friday as investors sold the currency.

With the perceived chances of a soft Brexit dwindling, markets are more anxious that the UK could crash out of the EU without a deal, or could be faced with a general election.

US Dollar (USD) Exchange Rates More Appealing as Rivals Weaken

The US Dollar (USD) was able to easily climb versus a weakened Pound (GBP) on Friday, as the solid US economic outlook and market risk-aversion meant that a US Dollar recovery after a week of losses for the US currency.

On top of Pound weakness, the US Dollar was particularly appealing as disappointing Eurozone data weakened the Euro (EUR).

As the Euro is negatively correlates to the US Dollar, the Euro’s Friday weakness made the US Dollar even stronger.

Surprisingly weak Chinese data worsened concerns about growth in the world’s second biggest economy, which also bolstered market demand for the safe haven US Dollar.

Of course, the US Dollar’s strength was capped off by market expectations that the Federal Reserve would hike interest rates next week, giving investors good reason to firm on the currency at the end of a volatile week for markets.

Pound to US Dollar (GBP/USD) Exchange Rate Investors Anticipate Brexit and Fed Developments

As the penultimate week of 2018 approaches and the Brexit process is no closer to reaching any kind of clarity or solution, and with mere months to go until the UK is set to formally leave the EU, uncertainty is only intensifying.

This means that despite typically notable UK data due for publication in the coming week, Pound (GBP) investors will remain focused on political or Brexit developments.

The Brexit process could still end in a number of ways, though amid a lack of support for UK Prime Minister Theresa May’s withdrawal deal there are concerns that a soft Brexit has become less likely.

If the deadlock persists, ‘no-deal’ Brexit fears will deepen and the Pound may be in for further losses. Signs that there could be a general election would also leave the Pound less appealing.

However, any possibility of a second EU referendum becoming more likely could bolster Sterling appeal.

As for the US Dollar, next week will see the publication of notable US data, as well as the Federal Reserve’s December policy decision.

The Fed is expected to hike US interest rates during its policy decision, but the tone the bank takes on the US economy and its 2019 outlook are more likely to influence the Pound to US Dollar (GBP/USD) exchange rate outlook.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard