Updated: US Dollar Dips as Markets Fear Delays to Tax Reform Bill
The Pound advanced by around half a cent against the US Dollar in overnight trade on Monday as uncertainty over Trump’s long-awaited tax reforms weighed on the US currency.
Analysts suggest that the Republicans may struggle to pass the tax bill by the end of the year as Congress will likely raise questions over how the reforms will be financed.
Sterling was forced to cede some of these gains this morning however when data showed that UK non-food sales slowed significantly in the three months to October.
The Pound to US Dollar exchange rate plunged -250 pips following the Bank of England’s decision to raise interest rates but tone down hawkish rhetoric last week.
BoE Hikes Rates, Forecasts Just 1% Interest Rates by 2020
Pound Sterling (GBP) plummeted across the board last Thursday when the BoE announced that it was raising UK interest rates 25 basis points to 0.50%.
Traders had bought the Pound coming into the announcement, however, profit-taking kicked in when Governor Mark Carney hinted that no further rate rises were likely over the next year.
Carney noted that the bank currently expects interest rates to rise by just 50 basis points over the next three years. This would represent a benchmark interest rate of 1.00% in 2020, which was not seen by speculative investors as high enough to warrant further Sterling strength.
Services PMI Supports Pound Sterling (GBP) Exchange Rates
The Pound to US Dollar exchange rate ticked slightly higher over the weekend as traders reacted to a sturdy UK service sector PMI print of 55.6, which was seen to represent quarterly growth of around 0.5%. However, ‘Cable’ failed to mount a significant recovery due to a reduction in the headline US unemployment rate to a 17-year low of 4.1% and a series of positive non-farm payroll results.
October’s NFP score came in at 261,000, while September and August received positive revisions.
The sanguine jobs data was seen to suggest that the US economy has largely recovered from the negative impact of Hurricanes Harvey and Irma, which leaves the door open to another 25 basis point rate hike from the Federal Reserve in December.
Neutral Outlook for GBP/USD Exchange Rate Ahead of Confidence Data
With little on the data calendar to contend with, bar UK manufacturing production data and a US consumer sentiment report, GBP/USD is liable to trade with a neutral bias this week.
Any significant shifts in Brexit talks could influence demand for the Pound, with developments likely to bolster demand and setbacks causing declines.
The Westminster sexual harassment scandal could also weigh on Sterling if it threatens to undermine Prime Minister Theresa May’s government, while US sentiment could be affected by President Donald Trump’s tax plan.
If Trump manages to push through a raft of tax cuts, the prospect of inflationary pressure would likely boost Fed rate hike bets and subsequently lead to an appreciation in the US Dollar.
On the other hand, if Trump’s tax cuts flounder like his healthcare reform plans then the ‘Greenback’ could start to soften.
EUSD Data Released This Week
10th November GBP Industrial Production (YoY) (SEP)
10th November GBP Manufacturing Production (YoY) (SEP)
10th November GBP Visible Trade Balance (Pounds) (SEP)
10th November USD U. of Mich. Consumer Sentiment (NOV P)