GBP/USD interbank rates brushed a five-month low yesterday, with the pound remaining under pressure against the greenback.
|Currency Pair||% Change (Month)||Difference on £200,000|
Whilst the key interbank threshold of 1.25 may offer some protection to GBP, it also represents a level which if broken, would lead to a market value trading close to 30-year lows for the pound.
In truth, GBP has struggled to make any impression on the USD for the majority of 2019, with the interbank rate of 1.30 now representing somewhat of a glass ceiling for the pound.
Whilst there is no doubt that the US economy has performed above expectation for the two quarters of 2019, it is not only US economic productivity which has helped support the USD and boost it towards its current lofty heights. The dollar has been buoyed by the deteriorating pound, which has been subject to sharp-sell offs by investors over recent week, with the UK’s economic and political position being plunged into further uncertainty.
The USD has also been boosted by the current slowdown in the global markets, a situation which has ironically been brought about primarily because of the escalating trade tensions between the US and China, and also the trade tariffs the US have levied against the Eurozone.
This has caused investors to move their funds away from the riskier commodity-driven currencies and into the safer haven dollar, causing it to strengthen as a result.
With the Tory leadership challenge now taking shape, clients holding GBP will be hoping for a quick resolution and a clear Brexit mandate being put in place by the new PM. This could help to bring some clarity and ultimately some stability to the markets after months of uncertainty.
Much of the market's focus is currently centred on the next week's G20 summit and whether the US and China can make any headway in negotiations over their current trade standoff. Whilst President Trump remains confident that an agreement will ultimately be reached, talk up until this point towards his on-going confidence being misplaced.
What could ultimately be of more pressing concern to investors is today’s US FED interest rate decision and their subsequent monetary policy statement. President Trump has been one of the FED’s most vocal critics, citing their progressive rate hikes as negative towards preserving the US’s current economic stability.
Whilst the FED have alluded to a potential cut and have certainly kept a dovish tone in terms of any further hikes this year, the markets are not anticipating that the FED will cut their base rate tomorrow, a scenario which would likely weaken the USD and help support sterling above its current lows.
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