GBP/USD Exchange Rate Muted as Upbeat UK GDP Figures Fail to Revive Sterling
UPDATE 3: Following an abortive attempt to rally this morning, the Pound US Dollar (GBP/USD) exchange rate is currently flat, despite a solid GDP print from the UK.
The UK’s first monthly GDP reading revealed the UK economy grew a healthy 0.3% in May, thanks to a strong pick up in the services sector.
However this was not enough to offset the current strength of the US Dollar (USD), which is showing notable gains this morning as a rise in political uncertainty drives investors towards safe haven currencies.
GBP/USD Exchange Rate Rocked by Second Cabinet Resignation
UPDATE 2: The Pound US Dollar (GBP/USD) exchange rate has seen a sharp rise in volatility this afternoon as Boris Johnson’s resignation as Foreign Secretary sent shock waves across currency markets.
This was the second senior cabinet resignation in a matter of hours and suggests that opposition to Theresa May’s Brexit plan may be more widespread than initially thought.
GBP investors are now concerned about the possibility of a leadership challenge, with Sterling sentiment likely to drop even further if the crisis leads to further resignations.
GBP/USD Exchange Rate Ticks Higher as Brexit Secretary Resigns and New One is Appointed
UPDATE: The Pound US Dollar (GBP/USD) exchange rate continues to push higher this afternoon, with the resignation of Brexit Secretary David Davis helping to lift Sterling sentiment.
The departure of a prominent proponent of Brexit is having a marked impact on the Pound today, with GBP investors suggesting the UK is headed towards a softer Brexit. In his place will be former Housing Minster Dominic Raab.
At the same time the US Dollar continues to lose ground this afternoon, with Friday’s week labour figures continuing to limit movement in USD. Current GBP/USD is up 0.45%.
GBP/USD Exchange Rate Bolstered by Brexit Plan and Carney Comments
The Pound US Dollar (GBP/USD) exchange rate ticked higher last week, with Sterling quickly recovering from its opening losses as some solid UK PMI figures helped to bolster expectations of a Bank of England (BoE) rate hike in August.
These expectations were reinforced by comments from BoE Governor Mark Carney on Thursday as he suggested that recent economic data had given him ‘greater confidence’ that the UK economy would bounce back from a weak first quarter.
The Pound then ticked up further at the end of the week as a crunch cabinet meeting resulted in the UK government finally hammering out a blueprint for Brexit negotiations, much to the relief of markets.
Meanwhile the US Dollar (USD) opened last week on a solid footing thanks to a strong Manufacturing PMI release and rising trade uncertainty.
However the ‘Greenback’ struggled to cling to these gains later in the week, with some thin trading as US markets were closed for July 4th celebrations as well as a disappointing jobs report weighing on the USD exchange rate through the latter half of the week.
Pound Sterling (GBP) Exchange Rate Soars Following Davis Resignation
The Pound US Dollar (GBP/USD) exchange rate opens this week on solid ground, with the pairing appreciating around 0.4% as markets react to the resignation of Brexit Secretary David Davis.
Davis announced his resignation overnight on Sunday, stating that he did not ‘believe’ in the plan agreed last week, and criticising Theresa May’s proposals for ‘giving away too much and too easily’ to the EU.
Davis concluded he could not stay in post after a meeting in Number 10 earlier today – understand he was furious at Number 10 handling
— Laura Kuenssberg (@bbclaurak) July 8, 2018
However, despite some heightened political uncertainty, Davis’s resignation appears to have lifted Sterling sentiment this morning, with markets hopeful that the departure of a major Brexiteer within the cabinet will open the way for a softer Brexit.
The GBP exchange rate found further support from comments by Davis on BBC Radio 4, in which he stated he would continue to back Theresa May, easing fears of a potential leadership challenge.
US Dollar (USD) Slides, Weak Wages and Trade Tensions in Focus
At the same time, the US Dollar (USD) remains on the back foot this morning as USD investors continue to digest Friday’s jobs data, with investors remaining dejected following the weaker-than-expected wage growth.
The disappointing result has led to some economists rethinking their forecast that the Federal Reserve will raise interest rates up to four times this year.
Further impacting the US Dollar this morning are the mutual tariffs imposed between the US and China late last week, with markets waiting to see if Donald Trump pushes forward and imposes further tariffs in response.
GBP/USD Exchange Rate Forecast: US Inflation to Drive Dollar Rally?
Looking ahead, the GBP/USD exchange rate could slip back this week following the release of the latest US Consumer Price Index (CPI).
Economists currently forecast that Thursday’s CPI reading will reveal that inflation continued to tick higher in June, rising from 2.8% to 2.9%, likely strengthening the US Dollar (USD) on expectations that it will apply further pressure on the Federal Reserve to tighten monetary policy.
In the meantime the UK will release its latest industrial production figures on Tuesday, with the Pound (GBP) poised to jump if factory output rebounds in May as expected.