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Pound US Dollar (GBP/USD) Exchange Rate Under Pressure as Conservative Leadership Race Intensifies

June 13, 2019 - Written by Frank Davies

Pound Sterling US Dollar (GBP/USD) Exchange Rate Falters in Spite of Falling US Inflation

The weaker-than-expected nature of May’s US consumer price index data failed to prevent the Pound Sterling to US Dollar (GBP/USD) exchange rate from trending lower.

Although the inflation rate’s miss raises the odds of the Federal Reserve cutting interest rates in the near future this was not enough to drag the US Dollar down for long.

Instead, the GBP/USD exchange rate came under pressure as anxiety over Brexit picked up once again, following on from the failure of Labour’s cross-party motion to block the risk of a no-deal eventuality.

As investors braced for the results of the first round of voting in the Conservative leadership contest the appeal of the Pound proved largely limited.

High Odds of Federal Reserve Interest Rate Cut Limit US Dollar (USD) Downside

With markets having already effectively priced in the impact of a 2019 Fed interest rate cut the downside potential of USD exchange rates has diminished.

Even so, the appeal of the US Dollar diminished on Thursday afternoon thanks to a surprise increase in initial jobless claims on the week.

As the US labour market continues to show signs of struggling to tighten further the case for monetary loosening action appears to increase, to the detriment of USD exchange rates.

Contractions in May’s import and export price indexes further diminished demand for the US Dollar, suggesting that the Trump administration’s approach to trade is continuing to weigh on the economy.

Signs of BoE Optimism Set to Benefit GBP Exchange Rates

With Bank of England (BoE) Governor Mark Carney due to speak on Friday the Pound could find a rallying point, however.

Signs that the BoE could still raise interest rates in the months ahead, in spite of ongoing Brexit-based uncertainty, may encourage GBP exchange rates to trend higher heading into the weekend.

As Boris Johnson has emerged as the current frontrunner in the race to succeed Theresa May this could limit the potential for Pound gains in the days ahead.

Unless Johnson moderates his tone with regards to the prospect of a no-deal Brexit investors are likely to maintain a wary attitude towards GBP exchange rates.

Advance Retail Sales Rebound to Bolster US Dollar (USD) Exchange Rates

The appeal of the US Dollar could pick up, meanwhile, if May’s advance retail sales data rebounds as anticipated.

After seeing a modest contraction in April retail sales are forecast to pick up 0.7% on the month, pointing towards a greater level of confidence within the world’s largest economy.

Signs that consumers are largely shrugging off the ongoing anxiety surrounding the US-China trade dispute and the impact of existing tariffs may encourage a rally for USD exchange rates.

On the other hand, another month of weakening sales may offer the GBP/USD exchange rate a modest boost on Friday afternoon.
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