GBP USD Exchange Rate Slides Following Trump Tax Speech

September 28, 2017 - Written by John Cameron

STORY LINK GBP USD Exchange Rate Slides Following Trump Tax Speech

The Pound US Dollar (GBP USD) exchange rate continues to downtrend this week Trump’s tax proposals prompt latest uptick in the ‘Greenback’.

US Dollar Strengthened by Trump Tax Speech and Upbeat Data

The US Dollar was bolstered on Wednesday following a long awaited speech by US President Donald Trump on his tax reform plans and a stronger than expected rise in Durable Goods Orders.

Markets welcomed Trump’s tax speech yesterday as it gave hope to investors that his administration is finally starting to make progress on delivering on of the President’s most anticipated election promises, with traders also upbeat as Trump’s proposals included a corporate tax cut from 35% to 20, something his supports hope will fuel US election growth.

Joshua Mahony, market analyst at IG, said;

‘While the headlines are sure to focus on the tax cuts for rich individuals, the market focus will no doubt centre on the planned corporate tax cut which has the potential to sharply impact profitability throughout the market.’

However the US Dollar’s gains were hampered somewhat by concerns that Trump may struggle to pass his tax reforms given his failure to push through his healthcare changes, with Mahony adding;

‘it is worth noting that Trump has yet to deliver on any major policies… there is a good chance that these tax reforms are going to be as difficult to pass at the health reforms.’

The ‘Greenback’ was also strengthened earlier in Wednesday’s trading session by the release of the latest US durable goods order figures as the US Commerce Department reported that orders jumped from -6.8% to 1.7% in August, outpacing expectations it would only rise to 1%.

While orders are known to fluctuate quite wildly from month-to-month the accelerated business spending seen last month stoked the prospect of a December interest rate hike by the Federal Reserve and helping to boost the appeal of the US Dollar.

Sterling Weakened by Carney Comments

Meanwhile further weakening Sterling this morning were remarks by Bank of England (BoE) Governor Mark Carney during his opening speech at an event marking 20 years of independence for the central bank.
In his speech Carney suggested that the BoE’s independence and experience gained from handling the fallout of the financial crisis will be vital in allowing the central bank the freedom to tackle the economic consequences of Britain’s exit from the EU.

Carney said his speech;

‘In the two decades that followed independence, inflation averaged just under 2% compared with over 6% in the preceding two. It’s been one-fifth as volatile. Crucially, independence allowed monetary policy to respond boldly and effectively to the biggest financial crisis in a century.’

‘And it leaves the Bank well placed to address a range of possible developments around Brexit.’

However markets well a little unsettled by Carney’s suggestion that the BoE would be unable to prevent consumers from being hit by a fall in real incomes as the bank attempts to minimise job losses by allowing inflation to remain high.

GBP USD Forecast: UK GDP to Rise in Second Quarter?

Looking ahead the GBP USD exchange rate may mount a recovery tomorrow morning should the UK’s final reading of second quarter GDP match expectations that it will have risen from 0.2% to 0.3%.

However the Pound’s gains may be hampered somewhat by the release of the UK’s latest consumer confidence data as economists forecast that GfK’s sentiment index will have slipped from -10 to -11 in September.

Meanwhile the US will release its own GDP figures later this afternoon, with the US Dollar likely to strengthen if the final reading for the second quarter confirms that the US economy grew from 1.2% to 3% as previous estimates suggest.

Current Interbank Exchange Rates

At the time of writing the GBP USD exchange rate was trending around 1.3371 and the USD GBP exchange rate was trending around 0.7477.

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