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USD GBP Exchange Rate Falls as Potentially Explosive Congress Hearing Approaches

June 13, 2017 - Written by Toni Johnson

The US Dollar has fallen against the Pound today, ahead of the second high-stakes congressional hearing in two weeks.

Following the non-event of former FBI Director James Comey last week, today’s testimony will be from Attorney General Jeff Sessions.

Sessions is facing questions from key Democrat and Republican figures, who will be asking about Sessions’ contact with Russian officials, among other issues.

In the early days of Trump’s administration, National Security Advisor Michael Flynn resigned after having secretly met with Russian officials. If the same happens to Sessions then the US Dollar could crash, given the symbolism of such a high-profile Trump official exiting his post.

Other issues for Sessions to clear up include his role in the firing of Comey, which has been alternately attributed to incompetence from Comey or advice from Trump’s top advisors.

One curveball could come from any questions about the presence of a recording system in the White House. The existence of such a device has been queried ever since a Trump tweet that implied there could be ‘tapes’ of conversations between the President and Comey.

Sessions will be testifying under oath, so if there are any dramatic revelations about his or the President’s conduct then the US Dollar could tumble ahead of a potential fresh scandal.

After the Sessions event, the US Dollar is next likely to be moved by Wednesday’s Federal Reserve interest rate decision. According to forecasts, the Fed is practically guaranteed to raise US interest rates, with the odds exceeding 99.5%.

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These odds mean that traders could be heavily ‘pricing in’ an interest rate hike, which would prevent any spectacular US Dollar gains if the rate was raised.

On the other hand, if the Fed leaves interest rates unchanged then the US Dollar could tumble, as this would represent a significant upset to trader expectations.

The Pound’s latest rise against the US Dollar has been triggered by a rise in UK inflation during May, up to 2.9%. This puts inflation significantly higher than the Bank of England (BoE) target of 2%.

Such conditions have raised optimism that the BoE could be forced to raise UK interest rates in the near-term, which may trigger a Pound rally.

The news has not all been positive, however, as with inflation so high, real incomes are conversely falling at their fastest rate in three years.

Incomes will be the main focus of Wednesday’s UK data, along with unemployment rate and jobless claims figures.

If wage growth remains under 2.9% as forecast, then this will indicate a national wage squeeze, which may continually damage future UK economic activity.

If wage growth rises unexpectedly and claims and unemployment drop against forecast then the Pound may advance, but such a turn of events seems unlikely at present.

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