The Pound has continued to slide against the US Dollar on Thursday’s trading session, following a ‘disastrous’ speech from Theresa May on Wednesday.
As economists analyse what went wrong in close detail, there have been some suggestions that May might not be PM for much longer.
Mainly voiced by Conservative MP Ed Vaizey, this clamoring has only further concerned traders because it implies future UK political turbulence.
(Last updated October 4th, 2017)
The Pound has worsened against the US Dollar over Wednesday’s trading session, slipping to an exchange rate of 1.3272. Although this still left the Pound out on top, GBP nonetheless lost ground after a speech from PM Theresa May.
The Prime Minister gave remarks of questionable worth at the Conservative Party conference, which may be more remembered for delivery issues rather than any actual policy announcements.
May was plagued by a recurrent coughing problem, had to cope with a set malfunction and was unsettled early on by a comedian presenting her with a P45 ‘from Boris Johnson’.
May’s actual announcements included a plan to cap fuel prices and one to tackle the housing shortage. Details on the latter issue provoked some scorn, with Conservative officials suggesting that only 25k social homes would be built in 5 years, equivalent to 5,000 homes a year.
(First published October 4th, 2017)
The Pound has made a 0.3% rise against the US Dollar today, but could struggle if the Bank of England (BoE) remains cautious.
On a similar line, future US Dollar movement could be determined by news from the Federal Reserve.
Pound Outlook: Losses Possible if BoE Officials are Concerned by PMI Stats
The Pound has recently been supported by higher services sector activity, but optimism from this event may not persist. This is partly dependent on how the Bank of England (BoE) reacts to the news.
Summarising the different factors at play has been Chris Williamson of IHS Markit;
‘The rise in price pressures will pour further fuel on expectations that the Bank of England will soon follow-up on its increasingly hawkish rhetoric and hike interest rates.
However, the decision is likely to be a difficult one, as the waning of the all-sector [composite] PMI in September pushes the surveys slightly further into territory that would normally be associated with the central bank loosening rather than tightening policy’.
If the BoE does seem committed to higher UK interest rates despite the composite PMI declining, then the GBP/USD exchange rate could firm.
US Dollar Forecast: Losses possible if New Fed Chair is Dovish
A recent source of US Dollar movement has been speculation about the future of the Federal Reserve. As well as there being uncertainty about whether a December interest rate hike is likely, there is also the issue of who will lead the Fed.
Previously, the US Dollar appreciated when traders assumed that the new Chair in 2018 could be Kevin Warsh, a former Fed Governor. To economists, Warsh would represent a hawkish replacement to current Chair Janet Yellen.
This means that he would be more likely to push for progressive monetary policy tightening in the future, which could entail higher interest rates and a strong US Dollar.
On the other hand, however, if current Fed official Jerome Powell looks set for the top spot then the US Dollar could depreciate.
This is because Powell is considered the more dovish of the two options and is additionally thought to be supported by Treasury Secretary Steven Mnuchin.
Giving a short summary of the matter was Ulrich Leuchtmann of Commerzbank. Leuchtmann said;
‘Now everyone is thinking that Powell is the more likely choice and thinking of Powell as someone who will do very gradual policy incrementations. Warsh is seen as sort of positive, Powell as a negative basically; that’s the most important factor at the moment’.
Recent Interbank GBP USD Exchange Rates
At the time of writing, the Pound to US Dollar (GBP USD) exchange rate was trading at 1.3285 and the US Dollar to Pound (USD GBP) exchange rate was trading at 0.7528.
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