Underwhelming UK Retail Sales Data Prompts Pound Sterling US Dollar (GBP/USD) Exchange Rate Weakness
As the CBI reported distributive trades survey failed to show as significant an improvement as hoped in January this left the Pound Sterling to US Dollar (GBP/USD) exchange rate on a weaker footing today.
Disappointingly, the index only picked up from -13 to a neutral 0, failing to return to positive territory as forecast.
This suggests that the mood among UK consumers remains relatively muted, with sales limited as Brexit-based uncertainty persists.
Although investors have been betting on lower odds of a no-deal Brexit over the course of the week this optimism began to fade ahead of the weekend, leaving the Pound exposed to selling pressure.
Ongoing US Government Shutdown Limits GBP/USD Exchange Rate Downside
Demand for the US Dollar (USD), meanwhile, remains under pressure thanks to worries over the extended US government shutdown.
Both Republican and Democratic bills aimed at ending the shutdown failed to secure the necessary 60 votes to pass, dashing hopes of a potential end to the disruption.
At 34 days and counting this shutdown is now the longest in US history and looks set to run on into the foreseeable future.
This is likely to have a significant impact on the first quarter gross domestic product as federal workers continue to go without pay, adding to the bearish outlook of the US economy.
Shutdown Worries and Fed Decision to Weigh on US Dollar (USD) Exchange Rates
With various US data releases already delayed as a result of the shutdown, USD exchange rates could struggle to find any major rallying point in the days ahead.
However, a general sense of market risk aversion may still lend support to the safe-haven US Dollar in the near term.
Further evidence of a global slowdown could help to shore up USD exchange rates, even as worries over the underlying health of the US economy mount.
All in all, this is likely to encourage the Federal Reserve to leave interest rates on hold at its January policy meeting.
Another neutral Fed meeting may not provoke significant US Dollar volatility, though, as markets widely expect to see another cautious message from policymakers.
If the Fed signals a willingness to raise interest rates again later in the year, however, this could see the GBP/USD exchange rate come under pressure.
Pound (GBP) Exchange Rates Vulnerable Ahead of Parliamentary Vote
Speculation over Brexit is likely to remain a major influence on GBP exchange rates in the coming week, even with no imminent resolution to the parliamentary deadline expected.
This could drive the Pound down across the board on Tuesday evening if Theresa May suffers another significant defeat in a fresh parliamentary vote on Brexit.
As long as the odds of a no-deal Brexit do not appear to increase, though, this should limit the potential losses of the GBP/USD exchange rate.
Any signs of a potential extension to the March deadline may also provoke Pound volatility as the lingering air of uncertainty continues to diminish confidence in the domestic outlook.