Collapse of Cross-Party Brexit Talks Weighs on Pound Sterling US Dollar (GBP/USD) Exchange Rate
Political anxiety kept the Pound Sterling to US Dollar (GBP/USD) exchange rate under pressure at the start of the week as the collapse of cross-party Brexit talks weighed on investor sentiment.
This left Pound Sterling (GBP) on a generally weaker footing against its rivals as the matter of Brexit looks set to remain unresolved for some time yet to come.
With the Conservative party also beginning to gear up for an imminent leadership contest markets were discouraged by the prospect of further political upheaval.
However, as April’s Chicago Fed national activity index delivered a downside surprise this helped the GBP/USD exchange rate to recover some of its lost traction.
As the index contracted from -0.15 to -0.43 this painted a discouraging picture of the US economic outlook, with escalating US-Chinese trade tensions also looking set to drag on growth in the months ahead.
Lack of Brexit Progress to Keep GBP/USD Exchange Rate Under Pressure
UK political developments are expected to remain the primary influence on the GBP/USD exchange rate in the near term as speculation over Brexit continues.
With MPs still on course to reject Theresa May’s proposed withdrawal agreement for a fourth time, though, the potential for further Pound Sterling gains appears limited.
As Alia Mihr, senior analyst at Danske Bank, commented:
‘On previous occasions the GBP would rally mildly on the news of a change in the impasse and this could very well happen again in the coming week. However, overall, we remain sceptical, as we see only a slim likelihood of the bill passing, after pressure on politicians to find a way forward has eased following the Brexit deadline extension.’
The ongoing worry of Brexit-based uncertainty seems likely to keep GBP exchange rates generally biased to the downside, especially if the health of the wider global economy continues to show signs of deterioration.
Even if the UK consumer price index shows a solid acceleration to 2.2% on the year in April this may not be enough to help the Pound return to a stronger footing.
US Dollar (USD) Exchange Rates Vulnerable Ahead of Fed Meeting Minutes
Market risk appetite could help the US Dollar (USD) to maintain a positive outlook in the days ahead, given existing worries over the US-China trade dispute.
However, the mood of USD exchange rates could sour on Wednesday evening with the release of the Federal Open Market Committee’s (FOMC) latest set of meeting minutes.
Recent comments from Federal Reserve policymakers have raised the risk of the central bank shifting towards a more dovish outlook, something which could weigh heavily on the US Dollar.
Increased signs of caution within the minutes may leave USD exchange rates under pressure, with markets likely to price in higher odds of monetary easing coming before the end of the year.
Unless Fed policymakers demonstrate a hawkish outlook the GBP/USD exchange rate looks set to recover some of its lost ground on the back of the minutes.