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Pound Sterling to Dollar Exchange Rate: Sterling Sheds Value vs Dollar Further Ground on Improved US Consumer Confidence

November 8, 2019 - Written by Frank Davies

As the University of Michigan (UoM) consumer sentiment index showed a modest improvement on the month the Pound Sterling to US Dollar (GBP/USD) exchange rate shed further ground.

With US consumer sentiment proving resilient in the face of ongoing trade tensions with China and the EU the risk of weaker economic growth appeared to ease.

As higher levels of confidence are likely to translate into increased consumer spending hopes for fourth quarter economic activity naturally improved.

In the absence of any fresh UK data, meanwhile, the Pound struggled to find much in the way of traction against its rivals ahead of the weekend.

Improved UK Growth to Offer GBP/USD Exchange Rate Boost

The mood towards the Pound Sterling could improve on Monday morning, however, as forecasts point towards a recovery in the third quarter UK gross domestic product.

After the -0.2% contraction seen in the second quarter investors are anticipating a solid rebound in the quarterly growth rate, eliminating the risk of a technical recession.

Even so, with September’s monthly GDP reading expected to reflect fresh weakness within the UK economy the GBP/USD exchange rate could still falter at the start of the week.

Any deterioration in the UK growth outlook would lend further weight to bets that the BoE could cut interest rates sooner rather than later, dragging down the Pound in the process.

USD Exchange Rate Downside Forecast to Increase on Softer Inflationary Pressure

Although the consumer price index is not the Federal Reserve’s preferred measure of inflation this could still dent the US Dollar on Wednesday.

If the inflation rate shows any signs of easing the risk of future Fed dovishness is likely to increase, putting a fresh dampener on USD exchange rates.

However, any uptick in price pressures could encourage the US Dollar to make fresh gains across the board as the case for further monetary loosening diminishes.

With October’s US monthly budget statement expected to show a sharp deficit support for USD exchange rates could well fade.

Lack of UK Inflation Uptick Set to Drag on GBP Exchange Rates

While no change is expected from the headline UK consumer price index the Pound could still falter in the wake of the data.

If the monthly inflation rate fails to pick up from 0.1% to 0.2% as forecast this would give the BoE renewed cause for dovishness.

On the other hand, evidence that inflationary pressure picked up at the end of the third quarter may encourage investors to pile into the Pound once again.

Lingering political anxiety as markets continue to brace for the December general election could also see the Sterling-Dollar exchange rate stumble over the coming days.
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