Pound US Dollar (GBP/USD) Exchange Rate Muted as Johnson Announced Winner of Tory Leadership Election
UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate was left muted on Tuesday following the result of the Tory leadership election.
The pairing is currently trading at an inter-bank rate of $1.2466.
On Tuesday it was announced that Boris Johnson was the winner of the Conservative party leadership contest.
Johnson defeated Jeremy Hunt by gaining 66% of the vote, with 92,153 votes compared to Hunt’s 46,656.
However, despite fears Sterling would slump due to heightened fears of a hard no-deal Brexit, the win from Johnson left the pairing remained muted.
Pound US Dollar (GBP/USD) Exchange Rate Slides on an Unusually Dovish BoE’s Saunders
The Pound Sterling US Dollar (GBP/USD) exchange rate slipped on Tuesday and the pairing is currently trading at an inter-bank rate of $1.2447.
On Tuesday morning, the Bank of England’s (BoE) Michael Saunders suggested that Brexit may prevent the bank from raising interest rates.
Saunders is one of the bank’s more hawkish policymakers but has expressed uncertainty that the UK will leave the EU smoothly and signaled that he may not vote for higher borrowing costs.
Speaking to Bloomberg, Saunders said:
‘The economy right now is clearly not overheating – the underlying pace of growth, stripping out all of the funny effects, inventories, car shutdowns and so forth, is weak and below trend.’
Sterling (GBP) Exchange Rates Slide as Markets Fret Over Boris Johnson Becoming the New PM
Meanwhile, Pound Sterling (GBP) exchange rates slumped for a third consecutive day ahead of the announcement of the identity of the UK’s new Prime Minister.
Investors fear that if frontrunner Boris Johnson beats Jeremy Hunt the Pound could fall as no-deal Brexit fears increase.
Further political uncertainty could arise as many Cabinet Ministers have stated they would not serve under Johnson if he becomes the next Prime Minister.
Commenting on today’s Tory Party leadership contest, City Index’s Fiona Cincotta noted that it is casting a ‘dark cloud’ over markets, and noted:
‘Sterling’s slide continues to reflect concerns that a Boris Johnson win will result in a messy Brexit despite the fact that Parliamentarians have been putting legal breaks in place to prevent this outcome. A lot of weakness has already been discounted in the currency and if Johnson does win Sterling may continue to slide but not actually crash as some analysts seem to expect.’
US Dollar (USD) Exchange Rates Rise as Markets Expect a Smaller Fed Rate Cut
The US Dollar was able to edge up against Sterling as expectations for a Federal Reserve 50 basis point interest rate eased.
Market expectations for a larger interest rate cut decreased, with it now expected the Fed will cut rates by 25 basis points.
Meanwhile, reports revealed that US President Donald Trump and Congressional leaders reached a deal on Monday.
To avert a government default later in the year, this deal gives a two-year extension of the debt limit and federal spending caps.
In a Tweet, the President stated:
‘I am pleased to announce that a deal has been struck with Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer, Speaker of the House Nancy Pelosi, and House Minority Leader Kevin McCarthy.’
However, the deal still needs to be approved by Congress before its summer recess.
Pound US Dollar Outlook: Will a Better than Expected US PMI Composite Buoy USD?
Looking ahead to this afternoon, the US Dollar (USD) could rise against the Pound (GBP) following the release of the US Housing Price Index.
If May’s index reveals that house prices continued to grow in May, the ‘Greenback’ could be provided with an upswing of support.
Meanwhile, on Wednesday the Dollar could rise following the release of the flash US Markit PMI composite.
If the US PMI rises higher than forecast in July, it could provide an upswing of support for USD and cause the Pound US Dollar (GBP/USD) exchange rate to slide.