The Pound plunged across the board at the start of the week as the latest political developments in Westminster piled fresh pressure on GBP exchange rates.
Reports that 40 MPs are prepared to support a motion of no confidence in Theresa May’s leadership weighed heavily on Sterling.
As only eight more MPs are needed to trigger a fresh leadership challenge the minority Conservative government looks decidedly fragile at this juncture.
Markets were also spooked by the contents of a leaked letter from Boris Johnson and Michael Gove to the Prime Minister, which demanded a greater push towards hard Brexit.
With substantial progress in Brexit negotiations still lacking there appears to be very little cause for confidence in the Pound.
Unless the sense of political turmoil shows signs of easing then the Pound US Dollar exchange rate is likely to remain under pressure for some time to come.
However, an uptick in October’s UK consumer price index data may offer Sterling something of a rallying point.
If inflation continues to accelerate this could encourage the Bank of England (BoE) to tighten monetary policy further, a prospect which may improve the appeal of the Pound.
Even so, any softness in Wednesday’s wage growth data is likely to keep the GBP USD exchange rate on the back foot.
Resilient US Growth Supports USD Exchange Rates
Although there are still doubts over the likelihood of the Trump administration’s promised tax reforms passing before the end of the year the mood towards the US Dollar remains generally positive.
All signs point towards a more resilient US economy, with the Federal Reserve still looking on track to raise interest rates one more time in December.
Economic growth indicators remain predominantly encouraging, as researchers at BBH noted:
‘Both the St. Louis and NY Fed GDP trackers are estimating growth in Q4 at a little more than 3%. While the quarter is nearly half over, and there is much data still to come, the take away is this appears another quarter of above-trend growth.’
Nevertheless, forecasts suggest an easing in the US consumer price index for October, with inflation thought to have slowed from 0.5% to 0.1% on the month.
This may offer the GBP USD exchange rate some support, although the negative impact of weaker US data is unlikely to persist for long.
Provided that the Fed shows no signs of being deterred from an imminent rate hike the downside potential of the ‘Greenback’ is likely to be rather limited in the coming weeks.
Current GBP USD Interbank Exchange Rates
At the time of writing, the Pound US Dollar exchange rate was slumped in the region of 1.3108. Meanwhile, the US Dollar Pound exchange rate was making solid gains around 0.7629.