GBP/USD Exchange Rate Climbs as Pound Makes Further Gains
(Updated 16:00, 07/07/2022) The Pound US Dollar (GBP/USD) exchange rate continues to firm this afternoon as UK political developments put an end to months of speculation over Boris Johnson’s future as Prime Minister.
The former PM gave a resignation speech at lunchtime outside his Downing Street residence, listing the achievements his party have accomplished in recent years: several reporters commented upon the lack of contrition in his address and suggested that his framing of the situation made it appear that it was his party – not public opinion – driving him out of office.
Nevertheless, both public and markets appear relieved at the news of his deposition, which removes near term uncertainty over whether Johnson will stay or go. Uncertainty remains, however, regarding who will govern the country until a new Prime Minister is appointed and ultimately, who that new Prime Minister will be.
The headlines this afternoon speculate over who might replace Johnson, with favoured candidates including Liz Truss, Ben Wallace and Rishi Sunak. A YouGov poll revealed:
‘When you compare individual candidates against one another in head to head contests, a clear winner emerges among Conservative members: Ben Wallace.’
However, another Poll by JLPartners showed that the general public would prefer Keir Starmer as Prime Minister against all Tory candidates except Rishi Sunak:
NEW: @JLPartnersPolls survey of the general public, conducted yesterday and this morning.
Asked to choose between potential Tory candidates and Keir Starmer, Starmer leads all of them apart from Rishi Sunak. (1/4) pic.twitter.com/sVMYqfg6Rh
— James Johnson (@jamesjohnson252) July 7, 2022
Original article continues below:
Pound US Dollar Exchange Rate Trends Up on Big Day for UK Politics
The Pound US Dollar (GBP/USD) exchange rate is posting gains this morning, following yesterday’s descent to levels not seen since March 2020.
Supporting the Pound (GBP) is improved risk appetite, alongside political developments in the UK which will soon see a new leader in charge of the country and its post-Covid recovery.
At the time of writing, GBP/USD is trading at $1.1958, up 0.3% from today’s opening levels.
Pound (GBP) Attracts Support despite Political Turmoil
The Pound is firming against several peers this morning in spite of multiple headwinds, including a rift in the Conservative government which has driven more than 50 MPs to resign.
Boris Johnson’s capacity as Prime Minister has been under debate since news of the ‘Partygate’ scandal first emerged during lockdown. While several high ranking Tories were quick to come to his defence initially, Johnson has since lost support from a large swathe of his party.
Following the suspension of Conservative MP Chris Pincher after allegations of inappropriate behaviour and Johnson’s perceived enabling of the Tamworth MP in the years prior, the Prime Minister has been accused of lacking integrity.
One of the latest MPs to resign, education secretary Michelle Donelan, wrote in her resignation letter:
‘You have put us in an impossible situation. I am deeply saddened that it has come to this, but as someone who values integrity above all else, I have no choice.’
As Johnson accepts that he must leave office, the Pound seems to stabilise – perhaps buoyed by hopes that a new Prime Minister will be able to resolve some of the issues weighing upon the UK economy.
Among the most pressing of these is rising inflation and the subsequent risk of a recession. As key global commodities surge in price, the cost of living in the UK is pushing more and more people into poverty.
US Dollar (USD) Weakens on Improving Market Mood
The US Dollar (USD) is dipping against several rival currencies so far today, as market mood rebounds with US stock index futures posting modest daily gains.
While a hawkish policy outlook from the Federal Reserve has buoyed the ‘Greenback’ up until now, investors are focused today upon America’s imminent employment data release. This is expected to reveal that 200,000 new workers were hired by private businesses in June 2022 – up from May’s 128K.
While this news would be positive, tailwinds for the US economy invariably inspire a risk-on mood, which conversely saps safe-haven appeal for the currency.
Furthermore, recent USD upside has encouraged investors to cash their bets while the going is good, igniting a corrective pullback in the currency.
Downside may not last long, however, as persistent fears of a global recession cap risk appetite and fresh lockdowns in response to a Covid outbreak in Shanghai threaten to dent manufacturing output and supply chain efficiency.
Pound US Dollar Exchange Rate Forecast: UK Politics to Dominate Trading?
Looking ahead, the UK’s volatile political situation is likely to be the main catalyst of currency movements today, with Boris Johnson’s exit from the premiership causing tremors in the currency markets.
If Johnson is replaced swiftly with a popular politician widely believed to be capable and committed to the role, Sterling may garner further support, driving GBP/USD higher.
However, if the question of leadership is not resolved imminently, Sterling may sink on worries of prolonged political instability.