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Pound US Dollar (GBP/USD) Exchange Rate Fails to Capitalise as US Trade Deficit Hits 10-Year High

March 6, 2019 - Written by Frank Davies

Widened US Trade Deficit Limits Pound Sterling US Dollar (GBP/USD) Exchange Rate Downside

An unexpectedly sharp widening of the US trade deficit helped to put a floor under the Pound Sterling to US Dollar (GBP/USD) exchange rate on Wednesday.

As the deficit continued to swell in December, propelled by a decline in US export volumes, the mood towards the US Dollar soured.

With the US trade gap now at a ten-year high this raised concerns over the outlook of the US economy, highlighting the negative impact of the Trump administration’s protectionist approach to trade.

Even so, the GBP/USD exchange rate struggled to capitalise on this underwhelming data thanks to the latest bout of market jitters over Brexit.

Resilient UK Housing Market Forecast to Offer GBP/USD Exchange Rate Boost

The mood towards the Pound could improve on Thursday, however, if February’s Halifax house price index data proves encouraging.

Signs of resilience within the UK housing market could bolster confidence in the underlying strength of the wider economy, even in the face of Brexit.

As forecasts point towards prices accelerating 1% on the year in the three months to February this may offer GBP exchange rates a rallying point.

However, as long as officials fail to make progress towards a final Brexit deal any Pound strength is likely to prove fleeting in nature.

Stronger US Labour Market to Boost US Dollar (USD) Exchange Rates

Friday’s US non-farm payrolls report looks set to provoke further volatility for the GBP/USD exchange rate, meanwhile.

Although the headline change in non-farm payrolls figure is expected to ease, falling back from January’s unexpectedly strong 304,000 increase, this is unlikely to weigh the US Dollar down.

With the unemployment rate forecast to tighten from 4% to 3.9% confidence in the strength of the US labour market could improve further.

Unless the labour market shows significant signs of loosening the US Dollar could recover some of its lost ground ahead of the weekend.

While even a strong showing is unlikely to give the Federal Reserve incentive to raise interest rates this may still give USD exchange rates a solid boost.

Pound (GBP) Exchange Rate Support Limited as Brexit Uncertainty Persists

With UK data looking a little thin on the ground in the near future the GBP/USD exchange rate may struggle to find support.

In the absence of fresh domestic data the Pound remains vulnerable to any shifts in Brexit rhetoric, with investors still wary of the prospect of a no-deal Brexit.

Although the odds of the UK leaving the EU without a deal have diminished thanks to the promised parliamentary votes this may not be enough to prevent GBP exchange rates coming under pressure.

Until investors see higher odds of a smooth Brexit transition the upside potential of the GBP/USD exchange rate is unlikely to improve significantly.
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