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GBP to USD Exchange Rate Benefits from Trump Uncertainty

May 17, 2017 - Written by Tim Boyer

While Sterling has dropped against some other major currencies this week, the Pound to US Dollar exchange rate has advanced. Rising political anxiety in the US has harmed Fed rate hike bets and the appeal of the US Dollar.

Last week saw GBP/USD drop to 1.2886. However, since markets opened this week the pair has trended higher. On Wednesday the pair hit a weekly high of 1.2958.

The Pound outlook has been mixed this week despite its gains against the US Dollar.

Last week’s Bank of England (BoE) news, in which the BoE refused to budge on its stance to leave monetary policy loose despite rising inflation, has continued to weigh on the British currency.

In fact the Pound failed to benefit from Tuesday’s stronger-than-expected UK inflation stats because of the BoE. UK consumer prices accelerated to 2.7% year-on-year in April, but as the bank had already indicated it would not tighten rates even if inflation neared 3% this failed to impress traders.

Wednesday’s influential UK data also served to worsen market concerns about rising inflation. While UK unemployment reached multi-decade lows in March, wage growth slowed further than expected to 2.1%.

This was more evidence that as inflation rises, UK consumers will have less spending power - Britain’s heavily consumer-focused economy could slow notably in 2017.

However, the US Dollar’s troubles have eclipsed the Pound’s in markets this week.

Uncertainty in US markets has soared in the past week after a series of scandals have embroiled US President Donald Trump.

Tuesday saw Trump admit but defend that he shared classified intelligence information with Russian officials during a recent meeting.

Then, on Tuesday evening, reports emerged that Trump had asked ex-FBI Director James Comey to end his investigation into Michael Flynn. Flynn was under investigation for misguiding the White House in regards to his collaboration with Russian diplomats.

Some analysts have suggested that Trump’s actions amount to obstruction of justice, but either way the US Dollar has seen a notable increase in pressure amid the uncertainty of the US government’s stability going forward.

Federal Reserve interest rate hike bets for June have fallen from over 80% to under 70% in the last week.

Speculation has even risen in markets that Trump could be facing impeachment in the future. While some analysts suggest this is unlikely under a Republican Congress, the possibility has sent traders into a panic as they seek out safer investments.

The Pound is likely to end the week higher against the US Dollar if this ‘Greenback’ weakness continues – even if Thursday’s data disappoints.

Thursday will see the publication of Britain’s April retail sales results. Due to Easter, analysts expect retail activity will have improved from 1.7% to 2.1% year-on-year and from -1.8% to 1% month-on-month. A worse result than this would limit GBP/USD strength.

This week’s remaining US data isn’t likely to inspire much US Dollar movement. Thursday’s US jobless claims and Philadelphia Fed manufacturing stats could influence USD slightly, but investors are more likely to focus on political developments this week.
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