- Pound US Dollar Settles After Two-Day Relief Rally – Monday saw the Pound gain across the board as Andrea Leadsom conceded leadership race.
- UK Business Confidence Drops – Over two-thirds of firms surveyed claimed they would either cut or postpone UK domestic spending.
- US Dollar Struggles to Attract Invests with Stifled Safe-Haven Demand – Rallying commodities previously saw investors favour the riskier high-yield currencies.
- Pound US Dollar Forecast: Pairing Expected to Fall on Bank of England Rate Decision.
The Pound US Dollar exchange rate has seen glorious rallies over the past two days as markets reacted positively to the news that Theresa May would become the next Prime Minister of Britain.
After an initial decline at the start of Monday’s session, the pairing then instantly appreciated on the news of Andrea Leadsom dropping out of the Conservative party leadership race. This left Theresa May with no viable competition to run against and let the UK avoid a protracted period of political instability as the leadership campaign would no longer stretch on for months.
The US Dollar has had a difficult time of it all as safe-haven currency demand lifted after a period of sharp increases. Investors remain unenthused by the ‘Buck’ as a US Federal Reserve rate hike appears further away than ever.
Currently the Pound US Dollar exchange rate sits at 1.3284 after sliding up just 0.10% over the course of this morning’s session.
Sterling (GBP) Rally Abates as UK Business Confidence Slides
Sterling found support against every one of the majors over the course of the past two days thanks to the dropping-out of unlikely Tory party leadership hopeful Andrea Leadsom.
Leadsom conceded the race on Monday amid rumours the candidate was finding the media scrutiny too much to take.
With May set to move in to No. 10, the Pound’s rally continued yesterday as one of the major factors affecting the currency’s value, political instability, was somewhat lifted. She is set to be sworn-in later today.
The relief rally has fizzled out for the Pound though as it appears the majority of UK businesses expect to either cut or postpone domestic spending for the remainder of the year in reaction to post-Brexit economic conditions.
British stocks also languished earlier today but appear to be back on the rise. However, it has just came out that the UK government has sold over one-and-a-quarter billion Pounds worth of ten-year bonds at an interest rate of -1.578%. This highlights the continued angst over the uncertain post-Brexit market and economic conditions as investors are now paying both the UK and German governments for the pleasure of lending them money.
US Dollar (USD) Lacks Support as Safe-Haven Demand Remains Subdued
The US Dollar previously performed well over the weekend thanks to last Friday’s stellar non-farm payrolls release.
The report printed at a whopping 287,000 new non-agriculture employment opportunities, a figure that exits in stark comparison with last month’s 11,000.
However, safe-haven demand came to an abrupt end before Monday’s session finished and as a result the US Dollar posted notable declines against all the majors, with the currency continuing to slide today.
Rallying commodities and global equities saw investors flock to riskier, higher-yielding currencies such as the ‘Aussie’ and Canadian Dollar earlier in the week in an effort to take advantage of current market conditions.
The currency now appears to be stabilising and the upcoming Bank of England (BoE) rate announcement could lead to a reigniting of ‘Buck’ demand even if the US Federal Reserve seems far from considering a rate hike.
When the Fed raised interest rates in December for the first time in a decade, Chairwoman Janet Yellen eluded to the possibility of up to six rate hikes taking place over the course of 2016 if the economy permits it. So far we are yet to see one.
Pound US Dollar Exchange Rate Forecast to Plummet on Bank of England Rate Cut
Later today the US import price index is set for release, the report outlines inflation relating to imported goods and is forecast to increase print at -4.6% following a reading of 5.0% the previous month. While a print of this nature would still be fairly good news, falling import prices always bode well for the US economy so not much movement is expected unless the figure can plunge lower into the negatives.
Three high impact data releases for the US on Friday hold potential for currency movement if they can avoid being drowned out by Thursday’s BoE rate decision. Advance retail sales and the University of Michigan’s consumer confidence survey should offer some indication of economic sentiment.
The US consumer price index is also set for Friday. The US Federal Reserve’s preferred measure of inflation, annual CPI is predicted to increase 0.1% to 1.1%, edging ever so slightly closer to the Fed’s target levels.
From the UK, the only event to watch out for will be Thursday’s Bank of England benchmark rate decision. The majority of analysts are in agreement that the central bank will elect to slash rates. Naturally this move would be likely to cause the Pound to fall back into depreciation and if the BoE decides to cut to 0%, the drop could be drastic.
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