Pound US Dollar (GBP/USD) Exchange Rate Falls as UK Looks for New PM
The Pound US Dollar (GBP/USD) exchange rate is tumbling today. The currency pair is likely coming under pressure from poor UK retail data this morning. A sharp rise in government borrowing could also be denting enthusiasm for the pair.
The UK’s continued political instability may also be a factor as the Conservative party enters a new leadership contest.
At time of writing the GBP/USD exchange rate is at around $1.1126, which is down roughly 0.8% from this morning’s opening figures.
Pound (GBP) Slips as Retail Sales Slump alongside Sharp Rise in Borrowing
The Pound is falling today after poor data releases this morning, as well as fresh political instability in the UK. A retreat in risk appetite is also weighing on Sterling.
An above-forecast fall in September’s retail sales volumes added to the UK’s poor long-term outlook. Soaring inflation amid the UK’s cost-of-living crisis is thought to have severely limited UK household spending.
Drastically higher-than-forecast UK government borrowing is also likely pushing the Pound lower today. The figures are the second highest September borrowing on record, and increases pressure on Chancellor Jeremy Hunt ahead of the 31 October budget announcement.
The downbeat data comes amid a fresh leadership contest for the UK following PM Liz Truss’ resignation on Thursday.
Bets on Sterling are likely being limited as markets await the outcome of the contest. A truncated schedule means that the UK could have a new PM as early as Monday.
US Dollar (USD) Climbs amid Hawkish Fed Speak
The US Dollar (USD) is firming today amid a risk-off market mood. The safe-haven ‘Greenback’ is also benefitting from a 14-year high in US Treasury bond yields.
Bets on hawkish action from the Federal Reserve in the coming months may also be pushing USD higher. Thursday saw a number of speeches from Fed policymakers that signaled their support for further interest rate hikes.
Board member Patrick Harker stated on Thursday that that the central bank would ‘keep raising rates for a while’ due to high inflation. Additionally, policymaker Liz Cook said that soaring inflation ‘will require ongoing rate hikes’.
GBP/USD Exchange Rate Forecast: Will UK MPs Coalesce Around Single Candidate?
Looking to the next week for the Pound, the currency could slip private sector output slumps as forecast on Monday. The data could add to the UK’s already poor outlook.
Tuesday’s data releases from the Confederation of British Industry (CBI) could also weigh on the Pound if they print as forecast. Industrial trends orders are expected to confirm the expected decline in activity for the UK’s manufacturing sector.
Additionally, Thursday’s distributive trends figures from the CBI could also push Sterling lower if it adds to the retail sector’s woes.
The continued political instability in the UK could also keep pressure on the Pound. A new Prime Minister could be chosen as early as Monday, although a closer race could lead to jitters in the markets.
For the US Dollar, Monday’s PMI figures could lend support to the currency if they print as expected. October’s data release is expected to indicate a return to growth for the US services sector.
Thursday could see strong gains for USD if GDP figures indicated a strong expansion in the economy in the year’s third quarter.
Finally on Friday, investors will be closely watching the latest reading of the PCE price index. The index is the Fed’s preferred measure of inflation, and an expected slip could ease expectations of bumper rate hikes from the central bank.