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GBP/USD Exchange Rate Drops as Cabinet Reshuffle Continues

January 8, 2018 - Written by Frank Davies

Over the previous week, the Pound to US Dollar exchange rate ultimately rose, following a mixed set of UK data releases.

The GBP/USD exchange rate opened in the region of 1.3498 on Monday, later closing higher around 1.3568 on Friday evening.

Initial weekly news consisted of manufacturing and construction sector PMIs, which showed slowing activity during December.

Any negative sentiment was turned around on Wednesday, however, when the services PMI for the same month showed above-forecast growth.

The week ended on a positive note for the GBP/USD pairing but a bad point overall, when new car sales were reported to have fallen overall in 2017.

The vehicle sales figure isn’t usually high-impact, but given the lack of other news, the stats still had a strong negative effect on Pound traders.

A Pound to US Dollar rate rise was only enabled through highly disappointing US data on Friday, which covered jobs changes in December.

The unemployment rate remained static at 4.1%, but non-manufacturing activity slowed and there were less new jobs added than expected.

To cap off a disappointing close to the first week of 2018, the US trade deficit also reportedly rose when forecasts had been for a slight reduction.

Daily GBP/USD Update: Exchange Rate Drops on ‘No Deal’ Rumours

The Pound has seen minor losses against the US Dollar today, as Prime Minister Theresa May continues to perform a cabinet reshuffle.

In the wake of 2017’s narrowly-won general election, the PM has held off on rearranging her senior ministers, but now is apparently the time to reshuffle the deck.

While the position of Conservative Party Chairman has already been filled, traders have mainly been focusing on a potential new post to be created by Mrs May.

This would be some form of ‘Minister for No Deal’, a role that would involve planning out how the UK would leave the EU if it did not accept the proposals on offer.

Such a position has not been confirmed yet, but the worry is that by creating the post, Mrs May would be opening the door to a potentially calamitous ‘Hard Brexit’ scenario.

Giving any credence to the idea of a ‘no deal’ exit is a risky move, as while it may satisfy pro-Brexit MPs in May’s government, it can also lead to investor caution and, as has been seen today, a decline in the value of the Pound.

Stressing how alarming this news is to unity-leaning figures, Scottish First Minister Nicola Sturgeon said;

‘[This] beggars belief. It [gives] the impression that the UK government thinks this is some sort of game, that Theresa May is more concerned with appeasing the hard-line Tory Brexiteers than she is about acting in the best interests of the country.

No deal is unthinkable. Let me be absolutely clear, no Brexit is preferable to no deal’.

USD/GBP Rate Firms after Fed Official Pushes Three Rate Hikes in 2018

The US Dollar has advanced against the Pound and peers like the Euro and South African Rand today, thanks to supportive statements from Federal Reserve official John Williams.

Speaking over the weekend, Mr Williams was optimistic about the US economy in the months to come, stating;

‘We're in a pretty good situation: the economy is doing great, everyone expects us to raise rates gradually...and if the data change we can respond to that.

I'm not worried about inflation suddenly taking off. Something like three rate hikes makes sense to me’.

While traders have been looking for signs of four interest rate hikes in 2018, such explicit support for at least three hikes has still raised the US Dollar’s appeal considerably.

Will GBP/USD Exchange Rate Decline on Widening Trade Deficit?

The Pound might fall sharply against the US Dollar on Wednesday, if the UK trade balance for November shows a deficit expansion as some suspect.

There will be UK manufacturing and industrial production data out around the same time, but the trade balance reading is considered the most high-impact of the impending releases.

US Dollar traders may have to wait for longer for the week’s main US news, which will consist of inflation and retail sales figures out on Friday.

Annual inflation is tipped to rise, while higher retail sales could also trigger a late-week USD/EUR exchange rate advance.
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