The Pound has lost ground to the US Dollar today, but both currencies may turn highly volatile on upcoming interest rate and budgetary news.
Pound may face Volatility on November BoE Interest Rate Decision
Pound traders are gearing up for possible turbulence on November 2nd, when the Bank of England (BoE) makes its interest rate decision for the month.
Unlike previous rate meetings this year, some economists think there is a genuine chance of the central bank raising interest rates this time round.
A recent reason for this optimism has been the fact that UK GDP has risen above forecasts in Q3, from 0.3% to 0.4%.
While a minimal increase, some believe that this is the ‘final barrier’ passed before the BoE can safely raise UK interest rates.
On the other hand, Confederation of British Industry (CBI) data has shown a crash in UK sales activity, suggesting that the UK wage squeeze is depleting consumer spending.
Leaving the situation highly ambiguous, BoE policymaker Jon Cunliffe has said that for him, a November rate hike is ‘a more open question’.
In the event that the BoE does push interest rates up to 0.50% on November 2nd, the Pound could rally against the US Dollar and other peers.
If caution wins out and the bank freezes rates for another month, then the Pound could conversely plummet due to trader disappointment.
US Dollar could Decline if Senate Struggles on Tax Reform
The US Dollar has recently been supported by progress in the House of Representatives, on the issue of budgetary reforms.
By a narrow margin of 216 votes for versus 212 votes against, the Republican Party has approved a provisional $4tn budget plan.
If these measures are finally approved, the US could see a sweeping wave of tax changes take place, adding trillions to the national deficit but potentially easing the strain of tax burden across the country.
The fact that the budget approval was so tightly contested shows that this may be an uphill struggle for Republicans in the Senate, risking disappointment in the future.
The Republicans notably failed to repeal and replace the Affordable Care Act earlier in the year, which was considered a major embarrassment for the party and for President Trump.
Giving a form of ultimatum on passing the tax bill was Lindsey Graham, a Republican Senator;
‘We promised to cut taxes, and we’ve yet to do it. If we’re successful, [Senate Majority Leader] Mitch McConnell is fine.
If we’re not, we’re all in trouble, we lose our majority, and I think President Trump will not get re-elected’.
If the Senate does approve these tax changes then the US Dollar could rally, as it would finally be evidence that the Trump administration is capable of introducing change.
Recent Interbank GBP USD Exchange Rates
At the time of writing, the Pound to US Dollar (GBP USD) exchange rate was trading at 1.3085 and the US Dollar to Pound (USD GBP) exchange rate was trading at 0.7641.
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