Currency News

Daily Exchange Rate Forecasts & Currency News

Hung Parliament Continues to Weigh on GBP USD Exchange Rate as Political Uncertainty Persists

June 12, 2017 - Written by David Woodsmith

The fallout from the snap general election continued to weigh on the Pound US Dollar exchange rate at the start of the new week, driving the pairing to a fresh eight-week low.

News that the Queen’s speech will be postponed gave rise to fresh political jitters, signalling that the partnership between the Conservatives and the DUP is far from finalised.

This encouraged a fresh bout of selling for the Pound, with Theresa May’s position as Prime Minister still seeming less than secure in spite of her stated intention to remain in the role.

Speculation that the formal start of Brexit negotiations could also be pushed back as a result of this domestic political turmoil equally weighed on the outlook of Sterling.

While there have been hopes that the minority Conservative government could soften its stance on the matter of Brexit the negotiations still do not look set to get off to an overly positive start.

Further downside pressure could be in store for the GBP USD exchange rate this week with the publication of the latest UK consumer price index report and the June Bank of England (BoE) policy meeting.

Any weakening in inflationary pressure is likely to diminish the appeal of the Pound, giving the BoE less reason to consider returning to a tightening bias in the foreseeable future.

If policymakers adopt a more dovish tone at Thursday’s policy meeting the GBP USD exchange rate is likely to extend its slump further.

Advertisement
Support for the US Dollar, meanwhile, remained steady thanks to expectations that the Federal Reserve will raise interest rates on Wednesday.

While an imminent rate hike is already largely priced into the ‘Greenback’ this has still helped to limit its downside potential.

However, as Jane Foley, Senior FX Strategist at Rabobank, noted:

‘Arguably of more interest, however, will be the Committee’s assessment of the recent run of mixed data and whether this is sufficient for the Fed to be less confident about the prospect of a third rate hike later in the year. It is our view that a rate hike this week will be followed by steady policy through the remainder of the year.’


If the Fed indicates that it is on course for a more aggressive pace of monetary tightening, though, the US Dollar could enter a bullish run across the board.

Even though some anxiety remains over the capabilities of the Trump administration this is unlikely to particularly weigh on the ‘Greenback’ in the absence of any major domestic developments.
Like this piece? Please share with your friends and colleagues:

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.


TAGS: Dollar Pound Forecasts

Comments are currrently disabled