Both the British Pound and the US Dollar are suffering from political concerns at the moment, however, the outlook looks worse for Sterling exchange rates.
US Dollar Suffers as Trump’s Tax Reform Faces Delays
GBP managed to press ahead against the US Dollar late last week following a trio of encouraging UK ecostats – rising manufacturing production, falling trade deficit and accelerating GDP.
The ‘Greenback’, meanwhile, saw consumer confidence dip from 100.7 to 97.8 and sentiment impacted by political posturing.
The US Dollar spiked when Donald Trump was elected US President last year due to hopes that his proposed tax reform and infrastructure spending plans would boost economic output, drive wages higher and boost inflation.
Analysts believed that this would prompt the Federal Reserve to pursue a faster approach to tightening US monetary policy.
However, Trump has failed to push through his spending programme and, late last week, the House of Representatives said they would like to delay the tax reform until 2019.
If investors lose faith in Trump’s ability to pass the tax cut programme then it could lead to a softer US Dollar exchange rate going forward.
Pound Sterling Exchange Rates Slide as Tories Undermine PM Theresa May
Despite registering gains on Friday, GBP/USD is feeling the pressure at the start of this week’s session due to renewed fears that UK Prime Minister Theresa May could be ousted midway through the Brexit negotiations.
Having seen two cabinet ministers resign over the last few weeks (defence secretary Michael Fallon due to allegations of sexual harassment and aid secretary Priti Patel due to unsanctioned meetings with Israeli officials), May faced calls over the weekend to discipline foreign secretary Boris Johnson and education secretary Michael Gove for undermining her authority.
The pair wrote a letter, which was leaked to the press, urging the PM to push for a hard Brexit.
If May reprimands Johnson and Gove it threatens to further disrupt her cabinet but if she fails to rebuke the pair it will make her appear weak.
Indeed, the Sunday Times reported that 40 Tory MPs (eight short of the 48 needed for a leadership contest) are ready to sign a vote of no-confidence in the PM.
The Pound has responded negatively to these developments because a change in leader could seriously impact Britain’s ability to secure a positive Brexit deal.
Data Affecting This Week’s GBP/USD Exchange Rate Forecast
14th November GBP Consumer Price Index (YoY) (OCT)
14th November USD Draghi, Yellen, Carney, Kuroda Speak in Frankfurt
15th November USD Consumer Price Index (YoY) (OCT)
15th November GBP ILO Unemployment Rate 3Mths (SEP)
15th November USD Retail Sales Advance (MoM) (OCT)
16th November GBP BOE’s Carney, Broadbent, Cunliffe, Place, Ramsden, Woods Speak
16th November USD Manufacturing (SIC) Production (OCT)
Pound US Dollar Forecast: UK Inflation to Overshoot US CPI
If the latest Westminster flare-ups had not occurred we could have been looking at a week of opportunity for Sterling. An expected rise in UK inflation to a new five-year high of 3.1% is likely to raise questions about the Bank of England’s plans to hold off on rate hikes in 2018.
US CPI is tipped to come in significantly lower at 2.0%, which, although not soft enough to prevent an expected Fed rate hike in December, could soften long-term US rate expectations.
But, as things stand, we are more likely to see Sterling slide than strengthen, due to the fragility of Prime Minister Theresa May’s government.