Pound Sterling to US Dollar (GBP/USD) Exchange Rate Recovers Ground as UK Budget Deficit Narrows

17-Year Low Budget Deficit Boosts Pound Sterling (GBP) Demand

UPDATE: As the UK budget deficit hit a 17-year low in March this offered a boost to the Pound Sterling to US Dollar (GBP/USD) exchange rate this morning.

However, the positive impact of the news was somewhat limited by the fact that the borrowing figures overshot the Office of Budget Responsibility’s forecasts for the last full financial year.

This left the GBP/USD exchange rate on a narrow uptrend, even as safe-haven demand continued to support the US Dollar (USD).

GBP/USD Exchange Rate Slides as US Confidence Grows

UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate extended its losses further over the course of the afternoon as market sentiment continued to sour.

While Pound Sterling (GBP) was able to hold its ground against many of the other majors it was unable to shake off the relative strength of the US Dollar (USD).

Unexpectedly positive US new home sales added to the bullishness of USD exchange rates, meanwhile, as the housing market showed signs of picking up.

With sales picking up 4.5% on the month investors found fresh cause for confidence, buoyed by this latest sign of stronger household sentiment.

Weaker US Manufacturing Index Fails to Support Pound Sterling US Dollar (GBP/USD) Exchange Rate

A fresh dip in the Richmond Fed manufacturing index was not enough to shore up the Pound Sterling to US Dollar (GBP/USD) exchange rate today.

Demand for the US Dollar (USD) picked up sharply as investors bet on the prospect of a resilient US economy, even as the Trump administration threatened fresh tariffs on EU products.

With the US sounding a belligerent tone against the EU and Iran global trade conditions look set to deteriorate in the months to come.

As investors were prompted to pile out of risk-sensitive assets on the prospect of US trade spats seeing a fresh escalation this offered the US Dollar a rallying point, in spite of any potential negative impact on the US economy.

Strong UK Wage Growth Limits Pound Sterling (GBP) Downside

The mood towards Pound Sterling (GBP) improved over the course of the day, even so, as the IHS Markit household finances index proved encouraging.

As households reported that April saw the strongest rise in wages since the report began in 2009 this gave GBP exchange rates a boost.

However, while wage growth continued to show signs of acceleration investors were concerned by the fact that the overall finances index remained within contraction territory.

With UK consumers looking set to maintain a resilient attitude, though, markets expect to see stronger retail sales and service sector growth in the months ahead.

Lower Government Borrowing May Shore up GBP/USD Exchange Rate

Further support could be in store for the Pound tomorrow on the back of March’s UK public sector net borrowing figure.

With forecasts pointing towards a modest level of new government borrowing confidence in the underlying health of the UK economy could improve.

As long as markets remain confident of potential progress in cross-party Brexit talks, meanwhile, this should limit the downside potential of the GBP/USD exchange rate in the near term.

Signs that the Labour and Conservative leaderships are failing to move towards a mutually agreeable compromise on the issue of Brexit would leave the Pound exposed to another bout of selling pressure.

Durable Goods Orders Resurgence to Boost US Dollar (USD)

Thursday’s US durable goods orders data could offer USD exchange rates a fresh boost, meanwhile, as investors anticipate a solid rebound on the month.

After the -1.6% contraction seen in February forecasts suggest growth of 0.7%, indicating a modest resurgence in US consumer spending.

Higher levels of durable goods orders would encourage greater confidence in the outlook of the world’s largest economy, improving the appeal of the US Dollar.

On the other hand, another underwhelming month of orders would expose USD exchange rates to renewed selling pressure as confidence in the economic outlook falters once again.

Any improvement in market risk appetite may also offer a leg up to the GBP/USD exchange rate in the short term.

Louisa Heath

Contact Louisa Heath