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Pound US Dollar (GBP/USD) Exchange Rate Under Pressure as Odds of No-Deal Brexit Rise

April 2, 2019 - Written by Frank Davies

Lack of Brexit Progress Keeps Pound Sterling US Dollar (GBP/USD) Exchange Rate Under Pressure

Parliament’s continued failure to break the Brexit deadlock saw the Pound Sterling to US Dollar (GBP/USD) exchange rate shed further ground on Tuesday.

As MPs failed to put sufficient support behind any of the proposed alternatives to Theresa May’s already rejected Brexit deal the sense of political uncertainty picked up once again.

A warning from EU officials that the risk of the UK leaving the EU without a deal are growing added to the Pound’s sense of bearishness, driving GBP exchange rates lower across the board.

March’s UK construction PMI offered the Pound nothing in the way of support, meanwhile, as the sector showed a second consecutive month of contraction.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, noted:

‘The situation in the UK construction sector was broadly unchanged from February, with PMI data posting a second consecutive month in contraction. The fault of this continuing inertia was placed squarely at the feet of Brexit.’

US Durable Goods Orders Contraction Fails to Drive US Dollar (USD) Exchange Rate Losses

A smaller-than-expected contraction in US durable goods orders saw the mood towards the US Dollar improve, on the other hand.

Even as consumer confidence showed signs of easing, with orders falling -1.6% on the month, investors were still encouraged to pile back into the US Dollar.

An upward revision to January’s durable goods orders figure also offered support to USD exchange rates, suggesting that sentiment is stronger than previously thought.

March’s ISM New York index saw a strong improvement on the month, meanwhile, jumping from 61.1 to 66.9 as business conditions picked up.

GBP/USD Exchange Rate Vulnerable to Weaker UK Services PMI

Fresh weakness could be in store for the Pound on Wednesday, though, as forecasts point towards another decline in the UK services PMI.

If the service sector shows a loss of momentum in March this would raise the risk of a weaker first quarter gross domestic product, given that the sector accounts for the majority of UK economic growth.

However, demand for the Pound could pick up if the services PMI shows signs of resilience.

Any uptick in service sector growth may encourage a sense of optimism over the outlook of the UK economy, even in the face of ongoing Brexit-based uncertainty.

Weaker ISM Non-Manufacturing Index to Limit US Dollar (USD) Exchange Rate Strength

USD exchange rates may come under fresh pressure in the wake of March’s ISM non-manufacturing composite index, with forecasts suggesting that growth eased on the month.

If the index dips from 59.7 to 58.0 as anticipated this may drive the US Dollar lower across the board, with any loss of economic momentum likely to encourage Federal Reserve dovishness.

Even so, as the index is expected to remain firmly in a state of growth any negative impact on the US Dollar could ultimately prove limited.

Market risk aversion could also put pressure on the GBP/USD exchange rate in the near term.
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