Hopes of Potential Brexit Deadline Extension Limit GBP/USD Exchange Rate Losses
UPDATE: After a weak start to the day the Pound Sterling to US Dollar (GBP/USD) exchange rate recovered some of its lost ground, although the pairing remained on a bearish bias.
With officials suggesting that a further extension of the current Brexit deadline could be necessary in order to give Theresa May’s successor time to adjust to the role the selling of Pound Sterling (GBP) eased a little.
Even so, with markets bracing for May to announce her departure date sooner rather than later any GBP exchange rate recovery is unlikely to last long.
Pound Sterling US Dollar (GBP/USD) Exchange Rate Slides as May Faces Ousting
With Theresa May under increasing pressure to resign the Pound Sterling to US Dollar (GBP/USD) exchange rate continued to slide, falling to a fresh four-month low.
An increasing sense of unrest within the Conservative party has raised the prospect of May departing even before her proposed withdrawal agreement comes before Parliament for a fourth time.
This sense of political unrest weighed heavily on Pound Sterling (GBP), particularly as the odds currently point towards a Brexiteer succeeding May as Prime Minister.
With the risk of a no-deal Brexit rising sharply once again, erasing earlier optimism over the potential for a second referendum, GBP exchange rates were left to slump lower across the board.
USD Exchange Rates Soften in Spite of Neutral Federal Reserve Outlook
Although the Federal Reserve continued to push back against the idea of an interest rate cut in its May meeting minutes this failed to boost the US Dollar (USD).
While the central bank looks set to leave monetary policy on hold for the foreseeable future, adopting a more optimistic outlook than investors, USD exchange rates struggled to find any fresh traction.
After benefitting from days of elevated global trade tensions the upside potential of the US Dollar has faded, especially as the ongoing spat with China threatens to drag on US economic growth.
As political pressure on the Fed looks set to increase in the coming months, as the Trump administration pushes for a rate cut, confidence in the US Dollar could prove a little limited.
US Dollar (USD) Vulnerable to Weakening Durable Goods Orders
The mood towards the US Dollar could sour further ahead of the weekend if April’s durable goods orders data shows a contraction on the month as forecast.
Evidence that orders slumped at the start of the second quarter could expose USD exchange rates to selling pressure, with a decline here pointing towards lower levels of consumer confidence.
Signs of decreased demand and manufacturing output may weigh heavily on the US Dollar, raising concerns over the underlying health of the world’s largest economy.
An upside surprise, on the other hand, could see the GBP/USD exchange rate extending its current downtrend further.
Sustained market risk aversion should also help to limit the downside potential of USD exchange rates in the near term as worries over the global growth outlook boost safe-haven demand.
Falling UK Retail Sales to Add to Pound Sterling Bearishness
While political developments look set to dominate the outlook of GBP exchange rates further softness could be in store on the back of April’s UK retail sales data.
As forecasts suggest a -0.5% contraction in sales excluding auto fuel on the month markets are unlikely to find cause for optimism in the economic outlook.
With household finances already under pressure thanks to slowing wage growth and rising inflation evidence of a slowdown in consumer spending could easily drag the Pound lower.
Any decline in the CBI reported retail sales index may equally put pressure on the GBP/USD exchange rate, adding to ongoing jitters over Brexit and the shifting political landscape.