Sterling rallied by around a cent last week to strike its highest level against the US Dollar since September 2016 as US President Donald Trump’s tax plans were met with skepticism.
GBP/USD On The Rise
‘Cable’ strengthened by around half a cent at the beginning of last week’s session following UK data showing that the British government met its 2016⁄17 deficit reduction targets. Meanwhile, across the pond, US data pointed to a slowdown in consumer confidence from 125.6 to 120.3.
The Pound continued surging throughout the week, spiking on Thursday when US Treasury Secretary Steven Mnuchin released ‘details’ of Donald Trump’s much-vaunted tax reform plans.
The report, a one-page bullet-pointed document, indicated that corporation tax would be cut from 35% to 15%. However, with vague goals such as ‘grow the economy’, ‘create millions of jobs’ and ‘provide tax relief to American families’ many analysts viewed the proposal as a wish list rather than a serious piece of policy. The US Dollar slid in reaction to the document because analysts concluded that Congress would not pass the massive cut to corporation tax unless the Trump administration came up with a way to fund it.
GDP Figures Compound US Dollar Pain
With markets questioning the efficacy of Trump’s bullish policy plans, the US Dollar came under additional pressure on Friday when annualised US GDP came in at 0.7% for the first quarter. The result marked a substantial slowdown on Q4 2016’s score of 2.1% and was significantly lower than market expectations of 1.0%. The underwhelming print sent GBP/USD to its highest level since September last year, even though UK GDP also disappointed with a score of 0.3%.
Week Ahead
‘Cable’ came close to breaking the 1.30 barrier last week and analysts are now starting to bet that Sterling could strengthen further over the next few months.
A sturdy UK manufacturing print of 57.3 boosted the Pound at the beginning of the week but it may take an (unlikely) upbeat UK services report to significantly boost UK economic prospects.
In terms of the ‘Greenback’, Wednesday’s Federal Reserve meeting is predicted to see the US central bank leave rates on hold. Any cautionary statements could seriously undermine the US Dollar, while a hawkish message could reenergise the world’s premier business currency.
There is also concern that Friday’s US non-farm payroll result could drag on the Dollar. Analysts are primed for a reading of 190,000 but the previous reading of 98,000 suggests the US labour market could be approaching full capacity.