The pound is sliding against the US dollar and the majority of its other peers this morning, extending the losses from yesterday as Brexit uncertainty continues to limit the appeal of Sterling. Currently dampening sentiment is the apparent lack of progress being made in cross-party Brexit talks, which have continued this week and are being described as “robust” by the Labour Party, although there is no sign of a breakthrough. This will likely disappoint GBP investors, many of whom had grown optimistic following media reports last week that Theresa May was preparing to concede to Labour’s demand for a customs union with the European Union. On top of this, questions continue to hang over Mrs May’s future as Prime Minister as calls for her to step down grow, with Conservative backbenchers urging her to resign following the upcoming European elections.
At the same time, the US dollar continues to gain ground this morning as nervous investors flock to the safe-haven currency after fears of a US-China trade war were reignited this week.
Markets had grown increasing confident in recent weeks that the US and China were close to finalising a trade deal, with comments from both sides indicating that talks were progressing smoothly.
However it appears that investors may have been complacent, after Donald Trump appeared to upend talks by threatening to impose more punitive tariffs on China.
Looking ahead to the second half of the week, we are likely to see movement in the exchange rate dominated by the release of the UK’s preliminary gross domestic product (GDP) figures for the first quarter.
This may see the pound bounce back on Friday as economists forecast growth will have jumped from 0.2 per cent to 0.5 per cent over the first three months of 2019.
However any gains may be tempered somewhat by the accompanying business investment figures.
Investment is expected to have contracted for the fifth consecutive quarter as Brexit uncertainty continues to weigh on sentiment.
In the meantime a speech by Fed Chair Jerome Powell on Thursday could lend some support to the US dollar if he further dispels concerns that the US central bank could cut interest rates this year.