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Pound US Dollar Exchange Rate News: GBP/USD Rangebound amid UK Political Uncertainty

June 7, 2022 - Written by John Cameron

GBP/USD Muted as UK Political Anxiety Drags On

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range after Boris Johnson struggled to survive yesterday’s no confidence vote.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.25, virtually unchanged from today’s opening levels.

Pound (GBP) Subdued as PM’s No Confidence Win Fails to Attract Buyers

The Pound (GBP) is rangebound against the US Dollar today after Prime Minister Boris Johnson only narrowly won yesterday’s vote of no confidence.

41% of Conservative MP’s voted against the PM in Monday’s no confidence vote. Although Johnson’s premiership should now be safe for another year, the vote has done little to boost investors’ confidence in GBP.

Economists at MUFG Bank highlighted that the UK political turmoil is likely to continue undermining GBP exchange rates, stating:

‘The result of the confidence vote in PM Johnson last night was not a particularly favourable outcome for the prime minister. It was a victory of course – by 211 votes to 148 votes – but perhaps a hollow one.

‘The difficult economic outlook that lies ahead will be far more difficult to get through with a PM that lacks support.’

Meanwhile, the Pound’s losses have been tempered somewhat by the UK’s latest services PMI.

May’s finalised services PMI was revised higher from 51.8 to 53.4. However, this is considerably below April’s 58.9, and was the weakest expansion in the service industry since February 2021.

This was driven by a slowdown in service activity, such as easing new order growth, and higher prices amid the UK cost-of-living crisis.

Tim Moore, Economics Director at S&P Global Market Intelligence, said:

‘There were bright spots in customer-facing parts of the economy during May, buoyed by a rapid recovery in consumer spending on travel, leisure, and entertainment.

‘However, hospitality businesses widely reported constraints on recovery from a lack of candidates to fill vacancies and difficulties meeting demand due to ongoing global supply chain disruption.

‘Service providers are increasingly concerned about the near-term business outlook, with price resistance among consumers and escalating cost of living pressures set to dampen spending during the second half of 2022.’

US Dollar (USD) Mixed on Risk Off Sentiment

The safe-haven US Dollar is rangebound against the Pound today as a risk off market sentiment prevails. The softer risk appetite comes as global economic growth remains a concern for investors.

Moreover, the ‘Greenback’ may be receiving some support from an uptick in US Treasury bond yields. This is in response to expectations surrounding the Federal Reserve: the bank has repeatedly signalled plans to continue hiking interest rates in the near-term.

The downside comes as USD investors await the US consumer price index, scheduled for release on Friday.

If the CPI slips from 6.2% to 5.9%, as expected, it may ease Fed interest rate hike bets and dent USD exchange rates.

GBP/USD Exchange Rate Forecast: Will US Trade Balance Undermine USD?

Looking ahead, the Pound US Dollar exchange rate may receive some support from the US trade balance, scheduled for release this afternoon.

While the US trade deficit is expected to narrow from a record high of $109.8bn to $89.5bn in April, this will still leave the deficit well above the historic average and may pressure the US Dollar.

As for the Pound, due to a lull in notable UK economic data, it will undoubtedly remain exposed to political developments.

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