Pound Sterling US Dollar (GBP/USD) Exchange Rate Capitalises on Partial US Government Shutdown
The mood towards the US Dollar (USD) soured this morning as signs pointed towards the partial shutdown of the US government lasting into the New Year.
Reports that the shutdown could extend until at least the start of the next Congress session weighed heavily on USD exchange rates at the start of the week.
Markets remain wary of the volatile nature of the Trump administration, with the dispute over funding for the controversial border wall looking set to drag on for some time.
With the US left in a state of relative paralysis the Pound Sterling to US Dollar (GBP/USD) exchange rate recovered some ground, reversing some of the previous week’s losses.
Trump’s continued disdain for the course of the Federal Reserve’s monetary policy and Chair Jerome Powell also cast a dark shadow over the US Dollar.
Lack of Support for Brexit Proposal Continues to Weigh on Pound Sterling (GBP) Exchange Rates
Uncertainty over Brexit continues to dominate the outlook of Pound Sterling (GBP), meanwhile, as support for the proposed Withdrawal Agreement remains lacking.
As the plan still looks set to be voted down when it comes before Parliament in January the risk of a no-deal Brexit remains higher than investors would like.
In the absence of any supportive domestic data GBP exchange rates struggled to find any significant support today, with demand for the Pound still predominantly driven by UK political developments.
However, the GBP/USD exchange rate could gain further ground ahead of the weekend if November’s BBA loans for house purchase figure proves positive.
Any uptick in mortgage approvals could shore up the Pound, encouraging greater confidence in the underlying resilience of the UK economy.
On the other hand, another month of slowing lending may weigh heavily on the GBP/USD exchange rate.
Narrowed Advance Goods Deficit Forecast to Boost US Dollar (USD) Exchange Rates
Although political concerns are likely to dominate the outlook of the US Dollar in the near term USD exchange rates could find some support on the back of November’s advance goods trade balance.
Forecasts point towards the goods trade deficit narrowing from -77.2 billion to -76.0 billion on the month, signalling a modest improvement.
As long as the deficit narrows this should limit the downside pressure on the US Dollar, at least in the short term.
However, USD exchange rates remain vulnerable to any signs of weakness within the US economy.
With December’s Chicago PMI forecast to see a significant loss of momentum on the month, easing from 66.4 to 57.9, the mood towards the US Dollar could sour further.
Unless the economy shows evidence of shaking off the negative impact of increased global trade tensions and US protectionism demand for the US Dollar is likely to diminish.
A stronger showing from December’s US consumer confidence index, however, could put some pressure on the Pound Sterling to US Dollar (GBP/USD) exchange rate this week.