Demand for the Pound diminished in response to a surprise weakening of December’s GfK consumer confidence index, with the measure dipping from -12 to -13.
This reflects a further deterioration in domestic sentiment, as rising inflation, stagnant wages and persistent Brexit-based uncertainty weigh on the consumer outlook.
Although the public sector net borrowing figure for November showed a smaller-than-expected increase in government debt this failed to boost GBP exchange rates on Thursday.
Investors were also discouraged by the latest UK political developments, as Theresa May’s close ally Damien Green was ousted from his post.
As Jane Foley, Senior FX Strategist at Rabobank, commented:
‘He is the third Cabinet Minister forced from office in just two months meaning May’s weak position has just become even more fragile. Predictably Sterling weakened on the news yesterday evening and has maintained a softer position this morning. Since the referendum on EU membership in June 2016, the Pound has been buffeted by an almost constant stream of political uncertainty and May’s tenuous grip on power suggests more is likely to follow.’
With the Prime Minister looking rather vulnerable, and her cabinet still divided over Brexit, there was little reason to buy into the Pound at this juncture.
Even so, if the third quarter UK gross domestic product report shows no revisions this could offer the Pound US Dollar exchange rate some measure of support ahead of the weekend.
US Dollar Falters as Third Quarter GDP Revised Lower
The latest raft of US data proved rather disappointing, meanwhile, as the finalised third quarter GDP figure was revised down.
Coupled with an unexpectedly sharp increase in jobless claims this undermined confidence in the health of the US economy, putting pressure on the ‘Greenback’.
However, this was not enough to shore up the GBP USD exchange rate, even as the US Dollar weakened against some of the other majors.
A fresh rallying point could be in store for the ‘Greenback’ on Friday, though, with the release of the latest personal consumption expenditure core and durable goods orders data.
So long as signs point towards rising inflationary pressure this should encourage investors to pile into the US Dollar, fuelling hopes that the Federal Reserve will pursue a more aggressive pace of monetary tightening in the coming year.
If either measure falls short of forecast, however, this could limit the bearishness of the GBP USD exchange rate ahead of the Christmas break.
Current GBP USD Interbank Exchange Rates
At the time of writing, the Pound US Dollar exchange rate was slumped in the region of 1.3355. Meanwhile, the US Dollar Pound exchange rate was making gains around 0.7488.
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