Pound v US dollar: GBP exchange rate under pressure amid soaring US Treasury yields

THE pound struggled against the US dollar this morning after a marked rise in benchmark US treasury yields propelled the ‘Greenback’ to fresh highs. Yesterday’s upbeat government borrowing figures no longer cutting it against the US dollar.

pound us dollar GETTY

The pound struggled against the US dollar this morning

This is largely due to US bond yields breaking 3 per cent and the US dollar following close behind.

This is not a routine occurrence, but thanks to higher inflation expectations and the prospect of hawkish Fed policies this year the US dollar is currently hard to keep down.

Another notable contributor was yesterday’s US consumer confidence index result.

It saw an increase from 127.0 to 128.7 in April, beating the forecast of 126.0.

Beyond this, new home sales in the US increased more than expect in March, rising by 4 per cent month-on-month and underlining fresh economic confidence in US households.

Chris Rupkey, Chief Economist at MUFG New York, said: “Americans appear to think the economy is headed in the right direction and it’s not just all talk because their greater confidence is leading them to buy more new homes.

“Everywhere you look confidence seems to be a rising tide that will lift all the boats.”

On this note, markets will be looking to assess today’s US MBA mortgage application numbers in April for a greater insight into demand for homes.

Everywhere you look confidence seems to be a rising tide that will lift all the boats

Chris Rupkey, Chief Economist at MUFG New York

Beyond that, there is very little going on in terms of data across the Pond.

Thursday will feature the latest US jobless claims readings, advance goods trade balance and durable goods orders – all liable to cause volatility for the pound US dollar exchange rate

Notably, Friday will also feature the key US and UK GDP estimates for Q1 2018.

Both of which will be carefully observed by the US Federal Reserve and the Bank of England (BoE) in determining monetary policy in the coming months.

On the Brexit front, the pound has proved relatively resilient to the latest negotiation hubbub.

However, this morning it traded somewhat cautiously amid comments from UK Brexit Secretary David Davis.

The Bank of England explains the exchange rate

Mr Davis has asserted that the UK will be able to negotiate and sign trade deals during the transition period, but not implement them, and also that article 50 can be extended if need be.

The primary market concern, is the situation regarding the Irish border, as until a solution is approved the threat of a no-deal Brexit remains and markets – fearing uncertainty – tend to sell Sterling at any rising prospect of a cliff-edge.

Looking ahead, tomorrow’s European Central Bank (ECB) rate decision could give Sterling a little lift, but this will be entirely dependent on the central bank sounding dovish.

Meanwhile, speeches on Friday from BoE Governor Mark Carney and policymaker Andy Haldane could provide better insight into the bank’s monetary policy plans for May and beyond.

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