The Pound Sterling to US Dollar (GBP/USD) exchange rate softened on Monday as data released by the Confederation of British Industry (CBI) came in below economist forecasts.
The Pound Sterling to US Dollar (GBP/USD) exchange rate fell to a session low of 1.4834
Data released by the CBI showed that demand for UK manufactured exports tumbled to the lowest level in more than two years, adding to concerns that the strength of the Pound and softer demand from the Eurozone will have a negative impact on the overall economy.
The CBI factory order index fell to a reading of -26 in March, the lowest level recorded since January 2013 and added to the -8 figure seen in February. The overall index slid to zero from the preceding month’s figure of 10 and was well below economist forecasts for a slight dip to a reading of 9.
Over the past few months the Pound surged by more than 7% against the single currency deterring Eurozone importers from buying British products. The strength of Sterling was blamed as the major contributor for the poor economic data.
‘Sluggish export performance seems to be a headache that won’t go away, with a still subdued Eurozone and headwinds from a stronger Pound. With emerging markets facing a tough time and uncertainty continuing to hang over the Eurozone, firms have to work even harder for opportunities,’ said the director of economics at the CBI.
Despite the slowdown, respondents to the CBI survey remain upbeat about the coming quarter.
The Pound was also under pressure from concerns over the outcome of the UK general election, which is due to be held on May 7.
The CBI warned that the UK economy could be negatively impacted if the vote results in a power vacuum. With no clear winner expected there is likely to be a period in which the political parties negotiate with one another to try and either forms some type of coalition or minority government.
‘Something we’ve started to see, and maybe will see a good deal more in the run-up to the general election, is the structure of risk reversals as the market prices in a difficult period over the immediate post-election time. It can move more aggressively and probably will do,’ said Steve Barrow from Standard Bank Plc.
The US Dollar could gain further later in the session if upcoming US housing data comes in positively and the CBI business optimism index comes in below forecast.
