Pound US Dollar (GBP/USD) Exchange Rate Fails to Capitalise on Fresh US Production Decline

Decline in US Production Fails to Shore up Pound Sterling US Dollar (GBP/USD) Exchange Rate

Another month of contraction in US industrial and manufacturing production was not enough to prevent the Pound Sterling to US Dollar (GBP/USD) exchange rate from weakening.

While signals continue to point towards a weaker month of performance from the world’s largest economy in January the US Dollar (USD) held onto a positive footing against its rival.

As January’s advance retail sales figure demonstrated modest growth on the month this encouraged hopes that consumers could prove more resilient in 2020.

Even with the global economy still appearing at risk of slowing thanks to the spread of Covid-19 the prospect of stronger US consumer spending points towards a healthier first quarter growth rate.

Absence of Political Excitement Dampens Pound Demand

As the impact of Sajid Javid’s surprise departure from the Treasury started to fade this limited support for the GBP/USD exchange rate.

While Downing Street now looks set to exert even greater control over spending and the upcoming budget a sense of anxiety continues to hang over the UK outlook, dragging on Pound Sterling (GBP).

With the EU looking set to take a harder stance in upcoming trade negotiations the risk of the transition period ending without an agreement seems heightened.

In the absence of any fresh UK data releases, this put a dampener on the GBP exchange rates as investors unwound some of the gains made on Thursday.

Weaker UK Wage Growth Forecast to Limit GBP/USD Exchange Rate Upside

Support for the Pound could weaken further next week if December’s UK labour market data fails to impress.

As forecasts point towards growth in average earnings easing in the final month of 2019 the GBP/USD exchange rate could falter on Tuesday.

A lower level of wage growth would raise the odds of consumer spending seeing a further decline in the months ahead, reducing the potential for a rebound in economic momentum.

A weaker level of earnings growth may also point towards a deterioration in business confidence, suggesting a greater inclination towards cost-saving.

The fourth quarter labour productivity index could equally weigh on GBP exchange rates if it shows any softening on the quarter.

Fresh signs that the UK economy remained on a weaker footing in December would leave the Pound vulnerable to another bout of selling pressure.

Fears of Dovish Fed Minutes Set to Weigh on US Dollar

Ahead of the release of the Federal Open Market Committee’s (FOMC) most recent set of meeting minutes support for the US Dollar may prove muted.

After the dovish turn Federal Reserve Chair Jerome Powell took in recent comments markets are keen to gauge the tone of February’s minutes.

Evidence of increasing dovishness among members of the FOMC would boost the odds of another interest rate cut coming before the end of the year.

Unless the minutes demonstrate a greater willingness to remain on hold among the majority of policymakers the US Dollar looks set to weaken.

Easing global anxiety over the spread of Covid-19 could also weigh on USD exchange rates in the days ahead, with a lower level of risk aversion set to weigh on the safe-haven currency.

If the infection rate shows sustained signs of stabilising the GBP/USD exchange rate is likely to benefit from the relative softness of the US Dollar.

Louisa Heath

Contact Louisa Heath