Probable Brexit Delay Fuels Pound US Dollar (GBP/USD) Exchange Rate Slide
After MPs rejected Boris Johnson’s fast-track timetable to pass his Brexit deal the Pound Sterling to US Dollar (GBP/USD) exchange rate came under renewed pressure.
Although the withdrawal agreement bill passed its second reading this failed to offer investors much cause for confidence in the face of another likely delayed deadline.
As a lack of clarity over Brexit has already shown signs of weighing down economic growth the possibility of another three months of uncertainty put a dampener on Pound Sterling (GBP).
While the odds of a no-deal Brexit scenario continued to fall this was not enough to prevent GBP exchange rates trending lower in the wake of the votes.
As Colin Ellis, managing director of credit rating agency Moody’s, noted:
‘Significant uncertainties remain around the timing and eventual outcome of Brexit, which is likely going to weigh on spending, investment and hiring decisions in the UK for some time, a clear credit negative.’
Easing US-China Trade Tensions Drag on US Dollar (USD) Demand
Growing hopes of further progress towards a US-China trade agreement weighed on the US Dollar (USD) as the general sense of market risk appetite picked up.
Even though the US economy has already shown signs of slowing in the face of trade tensions the latest optimistic signals from US and Chinese officials offered little support to USD exchange rates.
Domestic political anxiety also helped to limit the appeal of the US Dollar as impeachment proceedings continued.
September’s monthly budget statement could offer USD exchange rates a rallying point, however, if it sees a reversal of the previous month’s deficit.
A positive budget reading would suggest a greater level of resilience within the US economy, limiting fears over the negative impact of ongoing trade disputes with both China and the EU.
On the other hand, if the fiscal picture fails to show signs of improvement this could cast a fresh shadow over USD exchange rates.
Increasing Odds of General Election to Limit GBP/USD Exchange Rate Support
Developments around Brexit look set to remain the major driving force of the GBP/USD exchange rate for the foreseeable future.
As the odds of a general election rise the prospect of further political uncertainty could keep the Pound on the back foot, given the likely negative impact on economic activity.
Unless a sense of greater clarity over the UK’s future relationship with the EU emerges GBP exchange rates are expected to remain under pressure.
Even so, the Pound could find some degree of support if the BBA mortgage approvals figure shows improvement on Thursday.
Evidence of a strengthening housing market could allay some of the market’s concern over the health of the UK economy, suggesting a greater level of household confidence.
However, another deterioration in mortgage approvals could push the GBP/USD exchange rate further away from its recent five-month high.