GBP to USD Exchange Rate Benefits from Trump Jitters

May 10, 2017 - Written by Ben Hughes

STORY LINK GBP to USD Exchange Rate Benefits from Trump Jitters

After slipping earlier in the week, the Pound to US Dollar exchange rate began to recover on Tuesday evening and Wednesday as investors reacted with shock to news that US President Donald Trump had fired the Director of the FBI.

Despite recovery from its weekly lows, GBP/USD continues to trend below the week’s opening levels. GBP/USD opened this week at the level of 1.2980 and at the time of writing the pair trended in the region of 1.2950.
The pair’s losses this week have been largely due to solid demand for the US Dollar on Monday and Tuesday.

The Pound’s performance has also been decent which has helped to limit GBP/USD losses, but a lack of fresh supportive UK data has left it unable to hold against US Dollar gains.

Investors remain sturdy on Pound trade due to optimism about Britain’s upcoming general election, as well as UK data that indicates Britain’s economy may not slow much in 2017 despite Brexit concerns.

Anticipation for this week’s Bank of England (BoE) meeting has also benefitted the Pound. Markets speculate that BoE officials may finally begin to hint at tighter monetary policy in the long-term due to the recent strong performance of Britain’s economy.

The US Dollar, on the other hand, performed well earlier in the week due to higher bets of a June interest rate hike from the Federal Reserve.

However, USD optimism dropped slightly on Tuesday night and Wednesday morning following as uncertainty rose in US markets.

US President Trump shocked on Tuesday night when he sacked the FBI Director, James Comey.

Not only did this remind traders about the potentially unpredictable nature of the US administration, it also increased concern that Trump would succeed in pushing his tax reform policies through Congress.

This allowed GBP/USD to rise from its lows on Wednesday, but its recovery was limited by the lack of fresh reasons to buy up the Pound.

The Pound to US Dollar exchange rate’s recovery could extend on Thursday however, if the Bank of England happens to take a more hawkish tone towards the monetary policy outlook. If bank officials hint that tighter policy may be possible in the foreseeable future, Sterling will soar.

Thursday will also see the publication of Britain’s March trade balace, manufacturing production and industrial production results.

Over in the US, continued reaction to this week’s Trump news and any further action from the White House have the potential to spook markets.

Friday’s session will be influential for USD trade regardless. Key US data due on Friday includes April’s Consumer Price Index (CPI), April retail sales and Michigan University’s consumer sentiment survey for May.

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TAGS: Dollar Pound Forecasts