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Pound US Dollar (GBP/USD) Exchange Rate Crumbles as BoE Split Emerges

November 7, 2019 - Written by Frank Davies

Divided Bank of England Rate Vote Dents Pound Sterling US Dollar (GBP/USD) Exchange Rate

A split in the Bank of England’s (BoE) latest interest rate decision caught markets off guard, leaving the Pound Sterling to US Dollar (GBP/USD) exchange rate on the back foot.

Investors had anticipated another unanimous decision to leave interest rates at 0.75%, exposing the Pound to sharp selling pressure when policymakers instead voted 7-2 in favour of remaining on hold.

As two dissenters indicated their preference for cutting interest rates back to 0.50%, in order to insulate the economy against Brexit-based uncertainty, the odds of a future rate cut jumped.

This put GBP exchange rates under significant pressure on Thursday afternoon, especially as the BoE also opted to lower its growth forecasts in a further sign of dovishness.

Lower US Jobless Claims Encourage Hopes of Tightening Labour Market

The US Dollar, meanwhile, found support on the back of improved initial and continuing jobless claims figures.

While the modest decline in jobless claims is unlikely to be enough to push the unemployment rate back to its previous low this was still enough to shore up USD exchange rates in the short term.

However, if the US and China continue to move closer to agreeing a preliminary trade deal in the days ahead this could see the US Dollar fall out of favour once again.

As long as global trade tensions look set to ease the appeal of the safe-haven USD is likely to deteriorate, driven by a general increase in market risk appetite.

Stronger US Consumer Confidence to Offer Fresh US Dollar (USD) Boost

Even so, demand for the US Dollar could pick up further ahead of the weekend if November’s University of Michigan consumer sentiment index shows improvement.

Evidence that consumers are taking a more optimistic view could encourage hopes that economic activity may pick up further before the end of the year.

As higher levels of consumer spending would translate into stronger domestic growth any improvement here could offer USD exchange rates a solid boost.

On the other hand, any deterioration in sentiment may see the US Dollar stumble ahead of the weekend.

Further GBP/USD Exchange Rate Weakness Forecast on UK GDP Data

The third quarter UK gross domestic product looks set to fuel fresh GBP/USD exchange rate volatility on Monday.

While forecasts point towards quarterly growth returning to positive territory this may not be enough to prevent further Pound losses.

Unless the economy can demonstrate greater resilience in the face of ongoing Brexit-based uncertainty and political jitters GBP exchange rates are likely to remain under pressure.

A weak monthly growth reading may also drag the Pound lower across the board, with markets concerned that the economy could shed further momentum before the end of 2019.
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