Disappointing US Personal Consumption Expenditure Puts Floor Under Pound US Dollar (GBP/USD) Exchange Rate
A smaller-than-expected uptick in the latest US personal consumption expenditure price index kept the Pound Sterling to US Dollar (GBP/USD) exchange rate on a positive footing.
Although the index edged higher on the year in September the core reading still fell short of forecast, clocking in at 1.5% rather than 1.7%.
As the PCE remains the Federal Reserve’s preferred gauge of inflation this disappointment encouraged bets that the central bank will maintains a more dovish outlook in the coming months.
While October’s Chicago PMI showed a smaller slowdown on the month than anticipated this was not enough to offer the US Dollar (USD) any fresh boost ahead of the weekend.
Limited US Dollar Weakness Forecast on US Presidential Election Jitters
With the US presidential election fast approaching USD exchange rates look likely to benefit from a general increase in market risk appetite.
The US Dollar’s status as a safe-haven asset may help to insulate it from anxiety over the outcome of the election, in spite of what further political turmoil could mean for the US economy.
Even though a fresh fiscal stimulus package now appears unlikely to materialise until 2021 at the earliest USD exchange rates may only face limited downside pressure in the week ahead.
A contested election result or a drawn-out vote counting process could still put some pressure on the US Dollar, though, as uncertainty may weigh on the already-slowing economy.
GBP/USD Exchange Rate Appears Vulnerable Ahead of UK PMIs
Support for Pound Sterling (GBP) may prove limited in the absence of any imminent breakthrough in UK-EU trade talks.
A lack of concrete progress towards a deal could keep investors from favouring the Pound in the near future, given the lingering risk of the two sides failing to reach a mutual agreement.
GBP exchange rates also look set to experience further pressure with the release of October’s finalised set of UK PMIs.
As the initial readings for the manufacturing and service sector had both shown a loss of momentum on the month at the start of the fourth quarter support for the Pound appears likely to diminish.
Any negative revision to the services PMI in particular could see the GBP/USD exchange rate weaken, given the pivotal role that the sector still plays in driving the UK gross domestic product.
Evidence of Bank of England Dovishness May Drag Pound Lower
However, the GBP/USD exchange rate looks set to find a greater source of volatility on the back of the Bank of England’s (BoE) November policy meeting.
Although no change in monetary policy appears likely at this stage investors are keen to gauge the current outlook of policymakers.
As some members of the Monetary Policy Committee (MPC) had recently shown signs of leaning towards the possibility of further loosening, and even negative interest rates, the meeting minutes may weigh heavily on the Pound.
Unless the BoE reaffirms resistance to the possibility of turning interest rates negative support for the Pound could weaken in the wake of the announcement.