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Pound to US Dollar (GBP/USD) Exchange Rate Falls as Divisions Within the Conservative Party Grow

May 27, 2020 - Written by John Cameron

GBP/USD Exchange Rate Sinks on Brexit and Tory Party Disunity
The Pound to US Dollar (GBP/USD) exchange rate fell by -0.5% today, with the pairing currently trading around $1.22.

Sterling has suffered from increasingly disunity within the Conservative Party today as Prime Minister Boris Johnson’s standing is being eroded by the controversy over Dominic Cumming’s flouting of lockdown restrictions.

About 40 Conservative MPs have called for Cummings to go. As a result, this has left many Sterling traders feeling uneasy as the UK faces a prolonged sense of political uncertainty after the Bank Holiday weekend.

Meanwhile, Brexit worries have concerned after it was reported that the UK-EU fishing deal was unlikely to unlock the deadlock between the two powers.
The UK’s Chief Brexit Negotiator, David Frost, was also not hopeful, saying:

‘I’m beginning to think we might not make it by 30 June.’

As a result, Sterling traders are feeling increasingly anxious that UK-EU trade talks next month could, like the previous month, end up as inconclusive.

US Dollar (USD) Edges Higher Despite Risk-On Markets

The US Dollar (USD) edged higher against the Pound (GBP) today despite a surge in risk-sentiment as the world’s economies continue to reopen.

The ‘Greenback’ suffered yesterday after it was revealed that the US biotechnology company, Novavax, had begun its first coronavirus vaccine trials on humans. As a result, risk-sentiment soared on hopes that Covid-19 could be challenged earlier than previously expected.

In US economic news, today saw the release of the US Richmond Federal Reserve manufacturing index for May beat forecasts and rise from -53 to -27.

Richmond’s Fed’s Survey report stated:

‘All three components — shipments, new orders and employment — were above their April readings but still in contractionary territory.’

‘The index for local business conditions was also negative, but contacts expected conditions to improve in the next six months.’

GBP/USD Outlook: Could Weak UK Growth Dampen Risk Sentiment?

US Dollar (USD) investors will be awaiting tomorrow’s release of the US flash GDP figure for the first quarter. If this falls below consensus, then we could see the ‘Greenback’ benefit from rising fears for the global economy.

Tomorrow will also see the publication of the US initial jobless claims report for May. However, if these continue to soar, then USD could also benefit as risk-sentiment dampens.

Meanwhile, the GBP/USD exchange rate will continue to be driven by the UK’s domestic political situation. Any further signs of uncertainty within the Conservative Party over Dominic Cummings’ position would prove Pound-negative.

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