The Pound to US Dollar exchange rate jumped from 1.24 to 1.25 when markets opened this week, as investors reacted to Friday night’s news that US President Donald Trump had failed to find enough support to pass his ‘American Healthcare Act’ (AHCA) healthcare bill.
While not an economically-impactful bill, President Trump’s failure to pass it indicated to markets that he may also be unable to find enough support to pass any of his previously proposed fiscal policy plans.
As Trump’s proposals to introduce new fiscal policy and stimulate the US economy have been accounting for much of the US Dollar’s strength since last November, the sudden doubt over them has left the ‘Greenback’ plummeting this week.
Even the Pound has been considered safe compared to the US Dollar this week, despite expectations that the formal Brexit process will finally begin on Wednesday the 29th.
Some analysts are calling this unwinding of the ‘Trump rally’ to be something of a wake-up call for markets as uncertainty over the US economy returns in a big way.
Trump has become well-known for his controversial nature and some analysts have warned for months that he may fail to find support from even fellow Republican Party members when it comes to his more radical fiscal policy plans.
Proposed fiscal policies include US1$trillion in infrastructure spending, as well as plans to reform taxation. It has been speculated that the conservative Republican Party would be unwilling to allow that much spending on infrastructure.
With the US Dollar falling this week and traders becoming increasingly uncertain over the future of the US economy, some speculate the ‘Greenback’ could dial back many of the gains it has made over the last four months.
However, the strong US interest rate outlook could keep the US Dollar from losing too much value.
This also depends on upcoming US data which could influence market confidence in Federal Reserve interest rate hikes, as well as future trials for US President Trump.
Markets may become excited again if Trump details his fiscal policy plans, but if they fail to pass through Congress the Pound to US Dollar exchange rate could see further long-term gains.
The official start of Brexit is now largely priced in and UK uncertainty has subsided somewhat, compared with the rising uncertainty in the US. This leaves the GBP USD exchange rate outlook much better than it was at the beginning of the year.
At the time of writing this article, the Pound to US Dollar exchange rate trended in the region of 1.25. The US Dollar to Pound exchange rate traded at around 0.79.
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