Pound US Dollar (GBP USD) Fluctuates as Geopolitical Tensions Rise

Modified: Tuesday, 29 August 2017 18:35 BST - Written by Frank Davies

STORY LINK Pound US Dollar (GBP USD) Fluctuates as Geopolitical Tensions Rise

Both the Pound and the US Dollar found themselves awash today, afflicted by their own respective maladies and fluctuating in somewhat steady form.

Whilst the Pound started the day climbing against the US Dollar in the wake of hurricane Harvey, it soon pared its gains on the release of the UK’s housing price figures for August.

Nationwide revealed that year-on-year UK house prices fell from 2.9% to 2.1% in August, missing the 2.6% mark. Notably, also, the month-on-month reading demonstrated a contraction from 0.2% in July to -0.1% in August, the lowest figure in three months for UK house growth and evidence that consumer appetite may well be shrinking in the wake of stamp duty taxation, high levels of inflation and low wage growth.

Chief UK Economist at Macroeconomics, Samuel Tombs, stated:

‘Prices likely will continue to struggle to rise much, given that inflation still has further to rise, consumer confidence has deteriorated sharply since June and lenders intend to reduce the supply of unsecured credit. From February, new lending also will not generate borrowing allowances from the Bank’s term funding scheme, raising the costs of credit significantly. Accordingly, we still think that prices will be up just 1.5% year-over-year in December’.

Analysts also claim that stamp duty taxation has stifled house price growth, with revenues from said tax having reached all-time highs in the 12 months to June.

US Dollar (USD) Tumbles in the Wake of Hurricane Harvey

The US Dollar, traditionally considered a safe-haven currency in times of escalating geo-political conflict, has not reaped the rewards of such a reputation today, predominantly due to the continued and severe effects of hurricane Harvey.


The flooding ensuing from the category 4 hurricane is being cited as a once-in-every-800-years flood and the damage wrought is estimated to be over $20BN.

Also of note, however, is the areas that have been damaged, as they contain a large number of now damaged US refineries. Indeed, energy stocks have recently tumbled as a result of the storm and the floodwaters, with a huge downtime expected whilst companies repair following the destruction.

This news may well have negated the ability for the ‘Greenback’ to capitalise on the recent North Korean missile launch, as currencies like the Swiss Franc (CHF) are deemed less volatile and thus, safer investments.

US Consumer Confidence Proves Positive, GBP USD Continues to Fluctuate

The US received a run of data releases today, most of which proved positive.

US consumer confidence for August printed at 122.9, beating the 120.7 forecast and indeed July’s print of 120. Meanwhile, the S&P CoreLogic Case-Shiller composite home price index demonstrated growth of 5.7% year-on-year in June, matching May’s figure and printing in line with expectations.

Whilst these figures do indeed present a positive reflection of the US economy, markets were far more concerned with the effects of the storm and the serious damage it caused.

GBP USD Forecast: US GDP and UK Consumer Credit Figures on the Horizon

Tomorrow will feature the release of America’s gross domestic product (GDP) 2nd estimates, with the quarter-on-quarter Q2 growth rate figure predicted to present a huge jump from 1.2% in the previous period to 2.6%. The GDP price index figure, however, is forecast to drop from the previous period’s 1.3% to 1%.

If the price index does indeed drop then the US Dollar may come under even more pressure, pushing the GBP USD exchange rate into Sterling’s favour.

The Pound, on the other hand, may be affected by tomorrow’s release of the UK’s net consumer credit figures for July and indeed the mortgage approval figures, with the former predicted to remain steady at 1.5b and the latter expected to increase from 64.7k to 65.5k.

Whilst this would prove positive for the Pound, the primary mover for Sterling remains Brexit negotiations, and if any news on this front is deemed negative, then the US Dollar may come out on top.

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