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USD to GBP Exchange Rate Slumps after UK General Election Announced

April 19, 2017 - Written by Ben Hughes

Tuesday saw major losses in the US Dollar to British Pound exchange rate as investors poured into the Pound following a surprise announcement that a UK general election would be held on the 8th of June.

USD/GBP opened this week at the level of 0.7985 and has since plunged to a 2017 low of 0.7778. This was the pair’s lowest level since September 2016. USD/GBP continues to trend in the region of 0.77 on Wednesday.
The US Dollar’s performance has been limp this week as markets remain jittery over rising geopolitical tensions between the US and other nations.

With the US and North Korea both suggesting that military action against one another could be possible if tensions escalate, investors are hesitant to buy the US Dollar or even bet on Federal Reserve interest rate hikes.

While the Fed has indicated it will hike US interest rates once or twice more in 2017, market instability and political uncertainty could call this outlook into question.

This week’s US data has also been unable to support the US Dollar much. The data has been relatively low-influence, but Monday and Tuesday’s manufacturing stats both disappointed investors increasing concerns about the lasting strength of the US manufacturing sector.

Due to the mixed performance of the US Dollar, a strong Pound has been able to easily push USD/GBP to multi-month lows.

UK Prime Minister Theresa May confirmed on Tuesday that the next general election would be held on the 8th of June.

Amid market expectations that May’s Conservative party will gain an even bigger majority in Parliament through the election, hopes are rising that May’s government will be more easily able to enact its Brexit plans smoothly.

Speculation has also flared up that May could aim for a softer Brexit if she increases her Parliamentary majority.

Overall, the long-term Pound outlook was improved by the news as investors expect less political uncertainty once May (who was unelected) obtains a public mandate.

As a result of the stronger GBP outlook, the US Dollar to Pound exchange rate is unlikely to recover much this week even if US data impresses and UK data disappoints.

While Britain’s March retail sales results are highly important and could alter Britain’s 2017 growth outlook, Sterling is likely to hold most of this week’s gains even if they disappoint due to new Brexit hopes.

Similarly, Friday’s April US PMIs from Markit are unlikely to inspire much strength in the US Dollar this week, unless US political jitters subside.

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