Pound Sterling US Dollar Exchange Rate News: GBP/USD Weakens as the UK Gears Up for a Switcheroo in Downing Street

GBP/USD Exchange Rate Slips amidst Rising Political Uncertainty

The Pound Sterling to US Dollar (GBP/USD) exchange rate opens this week on the back foot as some jitters ahead of what is set to be a busy week in UK politics, weakens Sterling sentiment.

At the time of writing the GBP/USD exchange rate is down almost 0.3% so far this morning with the pairing trading at around $1.2461.

Pound (GBP) Slips as New PM Likely to Strike a Harder Tone on Brexit

The Pound (GBP) is being driven lower against the US Dollar (USD) and the majority of its other peers this morning as political jitters in the UK prompts some bearish Sterling bets.

GBP investors are bracing for the prospect of a new UK Prime Minister this week and how this may impact the outlook on Brexit.

With Boris Johnson widely expected to emerge victorious from the Conservative leadership election, analysts suggest we are likely to see the UK adopt an even harder tone on Brexit, the prospect of which could drive some notable weakness in Sterling.

Neil Wilson, Chief Market Analyst at Markets.com, said:

‘Watch for a harder tone on Brexit and the very clear message that Oct 31st is a hard date. As previously argued, the reality of parliamentary arithmetic may see this soften in due course. Pound traders will be watching the new PM like hawks over the coming days.

‘Sterling will remain vulnerable to the prospect of a no-deal exit on Oct 31st.’

GBP investors will be also eager to see who Johnson appoints to his new cabinet, as this will likely offer some indication of the type of Brexit he plans to pursue.

Tempered Fed Rate Cut Expectations Boost the US Dollar (USD)

Meanwhile, the US Dollar’s (USD) is off to a decent start this week, buoyed by tempered expectations for a rate cut from the Federal Reserve this month.

The sliding expectations come after comments from St. Louis Fed President James Bullard in which he stated a modest rate cut would be appropriate given the current US economic conditions.

This has seen bets of a cut of 50 basis points plummet from over 50% on Friday to just under 25% this morning according to CME’s FedWatch tool.

GBP/USD Exchange Rate Forecast: Drop in GDP to Prompt the US Dollar to Retreat Later this Week?

Outside of the introduction of a New UK PM this week, likely driving movement in the Pound to US Dollar (GBP/USD) exchange rate will be the publication of the latest US GDP figures at the tail end of the week.

Economists forecast that US economic growth will have slowed from 3.1% to 1.8% in the second quarter.

This is likely to likely to cast the US Dollar lower, especially as a slowing economy will put more pressure on the Fed to accelerate its monetary easing.

In the meantime, the publication of the Confederation of British Industry’s (CBI) latest industrial data could place more pressure on the Pound on Tuesday if order growth continued to contract as forecast this month.

Matthew Andrews

Contact Matthew Andrews