GBP/USD Tests New Five-Month low as Johnson Set for Ballot Win

GBP/USD Exchange Rate Slips on Rising Political Uncertainty

Update: The Pound to US Dollar (GBP/USD) exchange rate drifted lower on Tuesday afternoon, with the pairing threatening to fall below $1.25 as political uncertainty in the UK continues to dampen the appeal of Sterling.

This comes as Boris Johnson continues to lead the Tory leadership race, with markets raising concerns over the prospect of a no-deal Brexit as the Brexiteer is expected to once again emerge as the clear frontrunner following this evening’s ballot.

Meanwhile the US Dollar has experienced a modest pick-up in demand today, likely driven by a slide in the Euro after the European Central Bank (ECB) drop hints that a rate cut could be on the cards this year.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Muted as Political Uncertainty Drags

The Pound to US Dollar (GBP/USD) exchange rate is rangebound this morning as UK political uncertainty continues to limit the appeal of Sterling.

At the time of writing the GBP/USD exchange rate is virtually unchanged at $1.2533, leaving the pairing trading at a five-month low.

Pound (GBP) Exchange Rates Stall as Hammond Threatens to Resign as Chancellor

Pound Sterling (GBP) exchange rates are muted this morning as the UK currency is buffeted by reports that Chancellor Philip Hammond has considered resigning over Theresa May’s spending plans.

The reports suggest that Hammond is frustrated by the PM’s plans to spend billions of Pounds on education and other projects on her way out of the door.

It is understood that Hammond believes May should not bind her successor with big spending commitments as she attempts to shore up her legacy.

A senior government source stated:

‘[Philip Hammond] believes strongly that decisions on long-term spending should be made by the next person. They will have pressures relating to their Brexit proposal and need to be able to consider bids in the round.’

This adds to the uncertainty surrounding the Conservative leadership contest, which continues this evening with a second ballot and a televised debate. Political uncertainty looks set to remain the driving force behind Pound Sterling (GBP) exchange rate movement.

US Dollar (USD) Exchange Rates Rangebound Ahead of FOMC Rate Decision

At the same time, US Dollar (USD) exchange rates are also stuck in a holding position this morning as investors remain reluctant to alter their positions ahead of the Federal Reserve’s policy meeting on Wednesday.

While the Federal Open Market Committee (FOMC) isn’t expected to make any interest rate changes, USD investors will be eager to scrutinise the Fed’s forward guidance.

This comes amid growing speculation that the central bank may lower interest rates later this year as it looks to protect the US economy from potential repercussions from the US-China trade dispute.

However even if the FOMC confirms that it is considering a rate cut, any movement in US Dollar (USD) exchange rates may prove limited as analysts suggest a cut is already priced in by markets.

Pound to US Dollar (GBP/USD) Exchange Rate Forecast: Slowing UK Inflation to Drag on Sterling?

Looking ahead, the Pound to US Dollar (GBP/USD) exchange rate looks likely to stumble tomorrow morning following the publication of the UK’s latest Consumer Price Index (CPI).

Economists expect the CPI figures to reveal that UK inflation slipped in May, potentially dragging on Sterling sentiment.

The CPI figures will be followed by the Bank of England’s (BoE) own rate decision on Thursday, which could help to offset the weakness in the Pound if policymakers remain broadly hawkish on the prospect of further monetary tightening.

However, outside of the Fed and BoE rate decisions, the Pound to US Dollar (GBP/USD) exchange rate could be pressured lower by rising safe-haven demand as geopolitical tensions remain elevated as the US deploys an additional 1,000 troops to the Middle East.

Matthew Andrews

Contact Matthew Andrews