GBP/USD Exchange Rate Drops as Tory Leadership Hopefuls Harden Brexit Stance
The Pound US Dollar (GBP/USD) exchange rate hit a 27-month low today, leaving the pairing fluctuating around $1.242.
The Pound (GBP) plummeted against the US Dollar (USD) this afternoon as no-deal Brexit fears grew on expectations that the EU will reject Boris Johnson and Foreign Secretary Jeremy Hunt’s Brexit backstop plans.
Both potential leadership candidates have hardened their stance on Brexit, saying that the Northern Irish backstop was effectively ‘dead’ and would not be included in further negotiations with the EU.
Ireland’s Brexit spokesman Neale Richmond warned:
‘The backstop is a vital aspect of the withdrawal agreement, an aspect that was developed in light of the UK government’s own red lines. While it is no one’s preferred destination, it gives all sides the vital insurance policy to allow a new relationship between the EU and the UK to be formulated.’
Today’s UK economic data was generally overshadowed by rising Brexit fears.
GBP/USD Exchange Rate Sinks as Brexit Woes Mute Positive UK Economic Data
Pound Sterling (GBP) exchange rates failed to benefit from today’s release of the UK average earnings figures for May.
Wage growth beat forecasts, coming in at 3.6%.
Matt Hughes, the Deputy Head of Labour Market Statistics at the ONS, said:
‘Regular pay is growing at its fastest for nearly eleven years in cash terms, and its quickest for over three years after taking account of inflation.’
UK unemployment figures also remained at a 45-year low of 3.8%.
US Dollar Pound (GBP/USD) Exchange Rate Soars as US Retail Sales Beat Forecasts
US Dollar (USD) exchange rates, meanwhile, benefited from today’s US retail sales figures for June.
Advance retail sales came in at 0.4% on the month, far exceeding the 0.1% growth forecast. The previous month’s figure was also positively revised.
Better-than-expected retail sales growth has provided optimism regarding broader economic growth in the second quarter.
As a result, this has eased US market expectations of an aggressive rate cut from the Federal Reserve later this month, providing some uplift for the ‘Greenback’.
Royce Mendes, a Senior Economist at CIBC, commented:
‘Overall, the numbers should reduce market pricing for more than a quarter-point rate cut by the Fed later this month, but shouldn’t do much to alter most Fed members’ belief that policy needs to be eased at the next meeting.’
Today also saw the release of the US industrial production figures for June which remained flat as manufacturing weakened following this year’s slowdown in the global economy.
As Fed Chairman Jerome Powell said that the weak factory sector was a major reason for easing monetary policy this, however, has left some ‘Greenback’ traders feeling cautious.
GBP/USD Exchange Rate Outlook: UK Inflation Data in Focus
The US Dollar could lose some of its gains this evening of Jerome Powell makes any other strong hints regard a rate cut from the Federal Reserve this month.
Tomorrow meanwhile will see the release of the US housing starts figures for June.
Any signs of improvement would be USD-positive
Sterling investors will be awaiting tomorrow’s UK Consumer Price Index figures for June.
The GBP/USD exchange rate will also remain sensitive to Brexit discussions this week, as both Tory leadership candidates continue to show signs of hardening in their position on the UK’s relationship with the EU.