GBP USD Update: Continued US Uncertainty Drags US Dollar Down

July 21, 2017 - Written by Toni Johnson

STORY LINK GBP USD Update: Continued US Uncertainty Drags US Dollar Down

The Pound has pushed through negative UK news today, advancing by 0.2% against the US Dollar.

GBP News: Sterling Recovers after Trader Panic on Government Borrowing

The Pound has been on a rollercoaster ride today, initially trading around 1.2962 against the US Dollar due to concerns about public sector borrowing.

In June, the government borrowing deficit fell to -6.28bn. This was worse than forecast, as May’s figure had previously been revised up from -5.99bn to -6.39bn.

According to the Office of Budget Responsibility (OBR), the revision was due to changes in self-assessed tax collection and delayed payments to the EU, among other factors.

Other takeaways from the news was that the UK’s accumulated debt is now at the highest rate since the 1960s. Despite the negative implication of this, Sterling later advanced against the US Dollar on Friday afternoon.

Providing a summary of the borrowing news was The Guardian’s economics writer Philip Inman. Inman said;

‘The UK borrowed more than expected in June…almost 50% higher than the same month last year.

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Higher inflation forced the government to spend more on financing its debt mountain, other factors included lower GDP growth in the first quarter, a fall in corporation tax receipts and a bigger than expected contribution to the EU budget in June . Analysts said the deficit could now exceed forecasts over the rest of the financial year’.

US Dollar Weakened by Growing Trump Turbulence

Along with uncertainty about the Federal Reserve dragging the US Dollar down today, the currency has also been damaged by developments in Washington.

As the investigation into Russian involvement in the 2016 US election continues, Donald Trump has reshuffled his legal team.

The investigation is being led by former FBI Director Robert Mueller, but Trump’s lawyers are allegedly trying to hamstring Mueller’s efforts through a variety of ways.

Amid talk of Trump trying to pardon himself in the event he is found culpable, the US Dollar has tumbled due to growing concern about the longevity of Trump’s presidency.

GBP USD Weekly Forecast: Will Sterling Turn Turbulent on UK GDP Stats?

The coming week could see frequent fluctuations in the Pound to US Dollar exchange rate. Opening off weekly announcements will be Tuesday’s Confederation of British Industry (CBI) business optimism and industrial orders figures.

Giving a taste of the week’s mixed forecasts, business optimism is predicted to rise, but recorded orders are forecast to dip slightly.

More high-impact will be Wednesday’s Q2 initial GDP growth figures. On the positive side, quarterly growth from 0.2% to 0.4% is forecast. However, an annual slowdown from 2% to 1.9% is projected.

Slowing annual GDP would come as traders focus on Brexit instabilities and future Bank of England (BoE) decisions. Annual results are usually more impactful, so the Pound may end up sliding if results match forecasts.

Friday could see the GBP USD exchange rate end weekly trading in a rising state, when the GfK consumer confidence measure comes out. Covering July, the index is forecast to show a slight improvement on June with a shift from -10 points to -9.

The main US news next week will be Wednesday’s Fed interest rate decision and Friday’s Q2 GDP result.

Having raised US interest rates in June, the Fed is expected to leave rates untouched at 1.25% this month. At the present time, economists predict no Fed rate change until December, where the odds of a rate hike are about 50%.

This doesn’t mean that July’s Fed decision won’t cause movement – policymakers could still trigger a US Dollar rally if they hint at higher interest rates in the near-term.

In particular, if Fed Chair Janet Yellen talks up the US economy then the US Dollar could rally on revived hopes of a 2017 rate hike.

The US Dollar could see further gains on Friday, when Q2 GDP results come out; forecasts are for an upward revision from 1.4% to 1.7%.

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TAGS: Pound Dollar Forecasts