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GBP/USD exchange falls on Brexit concerns, US economic growth data

The spectre of a no-deal Brexit continued to weigh on sterling (GBP) in forex trading on Thursday as the exchange rate to the US dollar slumped.

The European Union’s Michel Barnier, who has been the chief negotiator with the UK as the latter continues its efforts to prevent an acrimonious divorce from the bloc in the coming months, believes outgoing Prime Minister Theresa May’s existing deal is the “only option”.

He added: “If the UK wants to leave in an orderly manner, this treaty is the only option. If the choice is to leave without a deal – fine. If the choice is to stay in the EU – also fine. But if the choice is still to leave the EU in an orderly manner, this treaty is the only option. This is all that our legal constraints allow.”

The Conservative government is eager to solve the Brexit problem after a bruising EU election last week, and several candidates to succeed May have stated that a no-deal scenario is back on the table. That could be the likely outcome if there are no further changes to May’s current withdrawal agreement.

Barnier’s comments during an interview with a New York-based publication on Thursday soured sentiment in the pound. The US dollar (USD) climbed 3.1% against GBP and the two currencies were trading at a $1.2606 interbank rate at 5 pm GMT.

The US dollar was also buoyed by new economic data showing a faster rate of growth during the first quarter. The US Bureau of Economic Analysis said there was a 3.1% hike in GDP between January and March.

However, looking ahead to Friday, the picture could change again for forex traders if the latest UK Gfk consumer confidence index provides a positive snapshot of the domestic economy.

The US dollar may also rise due to the contents of the Chicago Purchasing Managers’ Index (PMI). Market watchers believe a higher-than-forecast score could lead to a fall in the GBP/USD exchange rate later in the day.

The Australian dollar (AUD) steadied against the GBP on the back of lacklustre economic data. Building permit figures are tipped to have fallen 4.7% in Australia in April, while new home sales figures also slumped for the month (-11.8%).

The GBP/AUD exchange rate was trading at AU$1.8240 just before 5PM GMT on Thursday. The AUD has struggled to make ground on the pound this week as it continues to feel the knock-on impact of the US-China trade battle.

The GBP/EUR exchange rate fell 0.19% to 1.138 on Thursday on reports that Germany is ready to veto further extensions to Brexit unless major progress is made. A failure to agree to a second referendum or general election is likely to see Germany take a hard line at the next EU summit in October.

Finally, the long-term outlook for the GBP is tied heavily to the state of its departure from the EU. Lloyds Bank (LBCB) expects the GBP to make ground against the US dollar before the close of the 2019 calendar year. LBCB’s relatively bullish outlook also factors in a potential drop off in the strength of the US dollar during the next six months.

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