The GBP/USD interbank rate hit a two-year low against the US dollar yesterday as UK consumer spending recorded its worst reading since records began more than 20 years ago. Brexit uncertainty, a weak UK economic outlook, and a strong US dollar have all contributed to the sizeable shift.
|Currency Pair||% Change (Month)||Difference on £200,000|
The US dollar has maintained its momentum following last Friday’s payrolls report, which showed a buoyant labour market, and investors have now reduced the chance of a larger interest rate cut in July. The focus now moves to the Fed Chair, Jerome Powell who will speak later today. Investors are keen to understand whether US rates will be cut in July or if the Fed intend to look at monetary loosening over a longer cycle.
There was little US data yesterday but nevertheless GBPUSD saw a significant move as the interbank rate finally sunk below the key resistance level of 1.2500. There had been a 25% expectation for a 50-basis point cut but this has now dwindled to less than a 5% chance. In addition, there is increased likelihood that a 0.25% cut in July may not happen.
However, even with Jerome Powell speaking yesterday and today, Thursday’s Consumer Price Index will be equally most interesting, currently 1.8% over year ended May 2019. Inflation has been low for some time, which led many to call for looser monetary policy, particularly as trade issues have weighed on the US economy and are showing little sign of resolve despite continued rhetoric to suggest otherwise.
In other news, Trump’s approval rating now stands at 44%, increasing from 39% in April. Trump has always been a president of controversy, but this latest poll will be welcomed reading to the White House, with a little over a year until the next general election. Trump enjoys most success from the positive economy, where 51% of the electorate approve of the way he’s handled the issues. There are many areas where Trump is not viewed so kindly, but the strength of a nation’s economy is arguably the main influence on the electorate. It’ll be some time before the Democrats select their candidate, but with current standings Donald Trump could be set to take a second term in the White House.
If you have US dollars to buy or sell, it may be worth a quick chat with your account manager to discuss the influencing factors over the coming weeks.
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