Persistent Brexit Uncertainty Drags Pound Sterling US Dollar (GBP/USD) Exchange Rate Down
After Theresa May failed to make progress at Thursday’s EU summit the mood towards Pound Sterling (GBP) continued to sour as hopes of any imminent Brexit breakthrough faded.
As EU leaders failed to support May’s proposal of a twelve month limit on the controversial Irish backstop the prospect of any fresh concessions to sweeten the Withdrawal Agreement diminished.
With the proposed deal unlikely to successfully pass through Parliament investors saw little cause for confidence as the threat of a no-deal Brexit continues to hang over the domestic outlook.
This undermined the sense of political stability that had supported the Pound Sterling to US Dollar (GBP/USD) exchange rate in the wake of the unsuccessful Conservative leadership challenge.
As the Brexit issue is unlikely to see any resolution before January the appeal of the Pound looks set to weaken further in the near term.
Solid Retail Sales Data Shores up US Dollar (USD) Exchange Rates
Demand for the US Dollar (USD), meanwhile, picked up as November’s US advance retail sales data bettered forecast.
Investors were encouraged to find that sales had grown 0.2% on the month, even though this was still a slowdown on the previous month’s growth of 1.1%.
However, confidence in the underlying health of the US economy could easily diminish if the latest Empire manufacturing index weakens.
Any evidence of slowing growth within the manufacturing sector may weigh heavily on USD exchange rates, even though easing US-China trade tensions should boost the economy in the months ahead.
As anticipation builds ahead of Wednesday’s Federal Reserve interest rate decision, though, the downside potential of the US Dollar may prove limited.
With the Fed set to raise interest rates one last time before the end of the year the GBP/USD exchange rate looks vulnerable to fresh pressure.
Pound (GBP) Exchange Rates Vulnerable Ahead of BoE Announcement and Inflation Data
Anxiety over Brexit and the political landscape of the UK are likely to keep GBP exchange rates under pressure in the days ahead, unless there are more tangible signs of progress.
Demand for the Pound looks set to diminish further as markets brace for the Bank of England’s (BoE) December policy announcement, meanwhile.
If policymakers show greater signs of caution regarding the domestic outlook this could weigh heavily on GBP exchange rates.
Unless investors see reason to bet on the BoE tightening monetary policy again sooner rather than later the appeal of the Pound is likely to prove limited.
A weaker showing from November’s consumer price index may put additional pressure on the GBP/USD exchange rate, with softening inflation giving the BoE further incentive to remain on hold.
However, if the headline inflation rate accelerates further away from the BoE’s 2% target this could encourage the Pound to push higher across the board.