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US Dollar Pound Sterling (USD/GBP) Exchange Rate Stumbles as US Consumer Confidence Declines

January 29, 2019 - Written by Frank Davies

Weak US Consumer Confidence Index Dents US Dollar Pound Sterling (USD/GBP) Exchange Rate

The US Dollar to Pound Sterling (USD/GBP) exchange rate came under renewed pressure on Tuesday as the latest US consumer confidence index fell short of forecast.

As the index slumped from 126.6 to 120.2 this left investors with less incentive to favour the US Dollar, even as market risk appetite deteriorated.

This disappointing decline in confidence suggests that the recent government shutdown has had a more significant negative impact on the US economy than previously thought.

With weaker consumer confidence likely to feed into lower levels of spending this dip could drag on the first quarter gross domestic product, leaving USD exchange rates exposed to additional downside pressure.

However, the Pound was unable to capitalise on the softening of the US Dollar as speculation over Brexit picked up once again.

Brexit Anticipation Limits Pound Sterling (GBP) Exchange Rate Strength

As anticipation for the latest parliamentary vote on Brexit mounted GBP exchange rates struggled to find any particular traction.

With a number of amendments to Theresa May’s Brexit plan up for debate the Pound could see significant volatility overnight.

If Yvette Cooper’s proposal to rule out a no-deal Brexit fails to secure enough votes to pass the mood towards the Pound could sour significantly.

On the other hand, if Parliament exerts greater control over the issue this may give GBP exchange rates a fresh rallying point.

In the absence of any tangible progress towards a final agreement, however, the upside potential of the Pound remains limited.

Federal Reserve Policy Decision Forecast to Weigh on US Dollar (USD) Exchange Rates

The USD/GBP exchange rate could lose further ground on Wednesday, though, as markets react to the first Federal Reserve policy decision of 2019.

If Fed policymakers indicate a greater willingness to leave interest rates on hold in the months ahead this could weigh heavily on the US Dollar.

Even though there is no expectation for the Fed to return to a monetary tightening bias imminently any fresh signs of dovishness may still dent USD exchange rates.

However, if the Federal Open Market Committee (FOMC) adopts a more optimistic outlook this could encourage the USD/GBP exchange rate to push higher.

The fourth quarter annualised US gross domestic product may also provoke volatility for the US Dollar, meanwhile.

Pound Sterling (GBP) Exchange Rate Volatility Forecast on UK Net Consumer Credit Data

December’s UK net consumer credit data could offer the Pound a rallying point, even if market anxiety over Brexit picks up further.

As long as evidence points towards a greater sense of resilience among UK households the mood of GBP exchange rates is likely to improve.

Even so, as the Bank of England (BoE) has expressed concerns over an increasing reliance on debt any increase could still put pressure on the Pound.

On the other hand, any deterioration in credit or mortgage approvals could give the USD/GBP exchange rate a fresh boost.
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TAGS: Dollar Pound Forecasts

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