Pound US Dollar Exchange Rate News: GBP/USD Falls amid UK Political Turbulence

February 4, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Falls amid UK Political Turbulence

GBP/USD Stumbles as UK Prime Minister Faces Further Pressure to Resign

The Pound US Dollar (GBP/USD) exchange rate is slipping today as the UK faces political uncertainty as well as a significant rise in the cost of living.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3575, approximately down by 0.2% from today’s opening levels.

Pound (GBP) Falls Following Disastrous Political Moves

The Pound (GBP) is dropping against the US Dollar (USD) this morning following the resignation of four senior aides to the UK Prime Minister, Boris Johnson.

The recent ‘partygate’ scandal, Sue Gray’s report update and Johnson’s questionable comments about the opposition leader is creating a negative light on the UK government.

Director of communications Jack Doyle has said that these events had ‘taken a terrible toll on [his] family’ which has led to his resignation.

Munira Mirza, head of policy, has also handed in her resignation after Johnson implied that the Labour leader was involved in the failures of prosecuting Jimmy Saville.

Mirza wrote in her resignation letter:

‘This was not the usual cut and thrust of politics; it was an inappropriate and partisan reference to a horrendous case of child sex abuse.

‘I hope you find it in yourself to apologise for a grave error of judgment made under huge pressure ... It is not too late for you but, I’m sorry to say, it is too late for me.’

At present, cabinet ministers believe it’s 50/50 whether Johnson maintains his current position of power which is placing pressure on the Pound’s appeal.

Further weighing on GBP is the UK’s high cost of living.

Yesterday, the Bank of England (BoE) unsurprisingly lifted interest rates to 0.5%, with the bank forecasting inflation will reach 7% in April.

In addition, energy prices are set to see a 54% increase from April. This could undermine the UK’s economic recovery if it prompts a sharp fall in consumer spending.

Jonathan Brearley, the chief executive of Ofgem, said:

‘We know this rise will be extremely worrying for many people, especially those who are struggling to make ends meet, and Ofgem will ensure energy companies support their customers in any way they can.’

US Dollar (USD) Rises Amid Geopolitical Tension

The US Dollar (USD) is climbing against the Pound (GBP) this morning as. investors turn to the safe haven currency amid heightened geopolitical tensions.

Today, the US has announced that it believes that Russia will soon stage a fake Ukrainian attack in a bid to justify their own military taking action.

Pentagon spokesperson John Kirby, said yesterday:

‘We do have information that the Russians are likely to want to fabricate a pretext for an invasion.

‘As part of this fake attack, we believe that Russia would produce a very graphic propaganda video, which would include corpses and actors that would be depicting mourners and images of destroyed location.’

According to Nato Secretary General Jens Stoltenberg, ‘this is the biggest Russian deployment … since the Cold War.’

As this continues to unsettle the global markets, its likely investors will continue to favour the US Dollar and other safe-haven assets.

GBP/USD Exchange Rate Forecast: Will US Payrolls Weaken the US Dollar

This afternoon, the Pound US Dollar (GBP/USD) exchange rate could be buoyed by the release of the latest US non-farm payroll print.

Payrolls in January are forecast to slip from 199K to 150K, however USD investors are bracing for an even weaker-than-expected print in the wake of the abysmal ADP employment reading earlier in the week.

Another disappointing payroll release is likely to put significant pressure on the US Dollar as it is likely to dampen Federal Reserve rate hike expectations.

On the other hand, Sterling is likely to remain vulnerable to the UK political landscape amidst fresh questions over as Boris Johnson’s future as PM.

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TAGS: Pound Dollar Forecasts