Pound US Dollar Exchange Rate News: GBP/USD Wavers as Boris Johnson Announces Resignation as Prime Minister

July 7, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavers as Boris Johnson Announces Resignation as Prime Minister

Pound (GBP) Waves as Boris Johnson Announces Resignation

The Pound (GBP) initially spiked as Boris Johnson announced his resignation but remains fairly muted as the political storm is yet to clear despite the PM stepping down. Within just two days, over 50 MPs resigned from Johnson’s government in the wake of the latest wave of scandals to rock the Tory party.

Faced with insurmountable pressure, Johnson was left with little choice but to resign. But he wants to stay on as PM until the autumn, when new leadership can be elected. However, this has not gone down well with fellow Tories, with former Brexit Minister Lord Frost claiming he should not be allowed to stay on as caretaker Prime Minister:

‘The Prime Minister cannot continue because the business of government cannot continue & because it is clear that he is not supported by his Party in Parliament. I hoped he might have reflected overnight and come to realise that.’

‘If the PM insists on fighting this out then he will cause serious damage to the Party and Government, and destroy his place in history. If he insists on waiting until another vote of MPs then the 1922 Exec should meet and facilitate one more quickly than planned.’

Elsewhere, the latest decision maker survey from the Bank of England (BoE) highlights inflation expectations are rising, exerting further pressure on both the UK and the central bank. The report goes on to outline the worsening cost-of-living crisis with some key findings:

‘Over the next 12 months, firms expected unit cost growth to be 8.2%.

‘88% of firms reported they were finding it harder to recruit new employees compared to normal.

‘58% of respondents reported that uncertainty for their business was 'high' or 'very high' at the moment, 4 percentage points higher than in May.’

Meanwhile, despite Johnson’s resignation finally bringing the political uncertainty to an end, Brexit fears continue to weigh on Sterling. Concerns grow of a trade war with the EU if the controversial Northern Ireland protocol bill passes through parliament, which is expected to be this week.

US Dollar (USD) Bolsters after Hawkish Fed Minutes

The US Dollar (USD) continues to hold its strength against most of its peers today as the minutes from the Federal Reserve’s June policy meeting reaffirmed the expectations of another 75bps hike at the next meeting.

The minutes confirmed that Fed members prioritised price stability and all concurred that high inflation warranted restrictive interest rates, with a more restrictive stance if inflation continues. The clear and unambiguous minutes gave a clear message that the Fed will do whatever it takes to tame inflation. Only one member voted against a 75bps hike in June, just outlining the uniformed aggressive stance the Fed has taken.

Elsewhere, growing global recession fears continues to lend support to the US Dollar. Mounting gas security fears compound the economic pressures in Europe, causing safe-haven flows to less risky currencies, such as the ‘Greenback’.

GBP/USD Exchange Rate Forecast: Softening Labour Market to Dampen US Dollar?

Looking forward, several pieces of US data are due to print today, with ADP employment change and initial jobless claims could show some softening of the labour market. Speeches from the Fed could provide further movement for the US Dollar.

Meanwhile, data remains thin on the ground for the Pound, but speeches from the BoE could shed further light on the central bank’s monetary policy going forward.

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TAGS: Pound Dollar Forecasts