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Pound Sterling US Dollar (GBP/USD) Exchange Rate Strengthens After May Avoids Ousting

Pound Sterling Currency Forecast

Pound Sterling US Dollar (GBP/USD) Exchange Rate Benefits as Theresa May Sees Off No Confidence Vote

As Conservative MPs failed to oust Theresa May in a vote of no confidence the mood towards Pound Sterling (GBP) remained positive, even though the issue of Brexit remains unresolved.

While the outcome of the vote was not enough to dispel the sense of uncertainty that continues to hang over the domestic outlook it did help to diminish some of the recent political unease.

Even so, as May continues to seek fresh assurances from EU leaders regarding the controversial Irish backstop the Pound Sterling to US Dollar (GBP/USD) exchange rate may struggle to hold onto a positive footing.

In the wake of Wednesday’s vote analysts at TD Securities noted:

‘This implies some slight shift in favour of a softer Brexit as Brexiteers in the Conservative Party now need Theresa May to resign to have a chance of leading the Party within the next 12 months. But this changes very little from here for newsflow. EU leaders are still likely to say nothing fundamental can change in the agreement. The DUP is likely to continue to insist that no plan with a backstop is acceptable to them, meaning a deal only passes with Labour support. And all UK MPs will make clear that there is no majority at this point for any plan.’

With the March 2019 deadline fast approaching the mood towards the Pound could easily sour if the odds continue to point towards Parliament rejecting the proposed Withdrawal Agreement.

Lower Odds of 2019 Federal Reserve Interest Rate Hike Weigh on US Dollar (USD) Exchange Rates

Support for the US Dollar (USD) eased in the wake of Wednesday’s US consumer price index data, with the inflation rate stalling on the month in November.

The easing in inflationary pressure suggests that the Federal Reserve is likely to leave interest rates on hold for longer in 2019, to the detriment of USD exchange rates.

The US Dollar could see further losses this afternoon if November’s import and export price indexes weaken as forecast.

More evidence of easing price pressures would leave USD exchange rates vulnerable to another bout of selling, adding to the picture of a weaker inflationary outlook.

Demand for the US Dollar may also diminish if the latest jobless claims figures fail to point towards a fresh tightening of the US labour market.

Stronger UK Inflation to Support GBP/USD Exchange Rate

Although political developments are likely to remain the major driving force of GBP exchange rates in the coming weeks November’s UK consumer price index could provoke some additional volatility.

Forecasts point towards a fresh uptick in the headline inflation rate, keeping it from moving closer to the Bank of England’s (BoE) 2% target rate.

An increase in inflation would put BoE policymakers under greater pressure to consider raising interest rates again sooner rather than later.

As long as investors see reason to bet on the prospect of the BoE tightening monetary policy again in 2019 the downside potential of the Pound should prove limited.

However, as long as Brexit-based uncertainty continues to weigh on the UK economy the Pound Sterling to US Dollar (GBP/USD) exchange rate may struggle to recover any significant ground.