Bercow’s Announcement Caps Upside in GBP/USD Exchange Rate
Updated: The Pound to US Dollar (GBP/USD) exchange rate is trading below its best levels this afternoon following the sudden announcement that John Bercow will step down as speaker of the House of Commons.
Bercow, who has been speaker for 10 years announced he would stand down at the next election if one is called following this evening’s vote, or close of business on 31 October.
"This has been the greatest privilege and honour of my professional life"
— BBC Politics (@BBCPolitics) September 9, 2019
The news drove some modest selling of Sterling as Bercow has been a staunch defender of parliament’s authority and a thorn in the side a government which frequently attempted to flaunt its executive power over Brexit.
GBP/USD Exchange Rate Firms on UK GDP
The Pound Sterling to US Dollar (GBP/USD) exchange rate reversed its initial losses to edge higher again this morning as markets welcome the release of the UK’s latest GDP figures.
At the time of writing the GBP/USD exchange rate is trading at around $1.2336 up roughly 0.5% from this morning’s opening levels.
Impressive UK GDP Figures Lift the Pound (GBP)
The Pound (GBP) is on its way high again this morning in response to stronger-than-expected UK GDP figures.
According to data published by the Office for National Statistics (ONS), the UK economy grew by 0.3% in July, beating expectations of a more modest 0.1% expansion.
The 0.3% m/m rise in UK GDP in July is the strongest since January and wasn't obviously assisted by any one-off stimuli. Quarter-on-quarter growth on track for 0.4% in Q3 → so emphatically no recession, and no Bank Rate cuts coming soon (at least this side of Brexit). pic.twitter.com/6Tgdsc2SZi
— Samuel Tombs (@samueltombs) September 9, 2019
However, when viewed over a three-month average the GDP figures paint a less rosy picture of the UK economy, a trend which is expected to persist throughout 2019.
Rob Kent-Smith, head of GDP at the ONS, comments:
‘GDP growth was flat in the latest three months, with falls in construction and manufacturing.
‘While the largest part of the economy, services sector, returned to growth in the month of July, the underlying picture shows services growth weakening through 2019.’
Also supporting the Pound this morning was the accompanying industrial production figures, which defied expectations of another 0.1% contraction to climb from -0.2% to 0.3% in July.
Simultaneously, GBP investors remain aware today’s session could bring more political drama, with the expected passing of the Brexit delay bill into law potentially influencing Sterling later today.
Mixed Powell Speech Continues to Drive the US Dollar (USD)
The US Dollar (USD) remains on the defensive this week as markets continue to reflect on remarks made by Federal Reserve Chair Jerome Powell late on Friday.
Powell appeared broadly upbeat as he spoke in Zurich last week, waving off fears of an imminent recession and suggesting the outlook for the US economy remains a ‘favourable one’.
However, Powell subsequently hinted at the potential for the Fed to make additional rate cuts this year, stating that the bank will ‘continue to act as appropriate to sustain this expansion.’
CME Group’s FedWatch tool currently places the odds of a September rate cut at over 90%, with a 60% probability of another cut following in October.
GBP/USD Exchange Rate Forecast: Upbeat UK Wage Growth to Strengthen Sterling?
Looking ahead, the (GBP/USD) exchange rate may look to retest the highs struck last week, should UK data continue to print positively.
Economists forecast Tuesday’s jobs report will show that wage growth remained at an eleven-year high in July, potentially giving another leg up to Sterling.
Markets will also keep an eye on UK politics this week, with any further setbacks for Boris Johnson’s government potentially offering more support for GBP exchange rates.
For USD investors the focus this week may be on the publication of the latest US CPI figures on Thursday.
Economists forecast these will show that domestic inflation remained resilient in August, potentially strengthening the US Dollar as it may limit the appetite for additional rate cuts from the Fed this year.