Pound US Dollar Exchange Rate News: GBP/USD Weak as Truss is Confirmed the Next PM

September 5, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Weak as Truss is Confirmed the Next PM

GBP/USD Exchange Rate Experiences Poor Trade During Conservative Election

The Pound to US Dollar (GBP/USD) exchange rate was trading sideways throughout Monday morning as the UK awaited to usher in their next prime minister.

At time of writing the GBP/USD exchange rate traded at around $1.1503. Virtually unchanged from Monday’s opening level.

Pound (GBP) Subdued After Truss Confirmed as Next PM

The Pound was mixed on Monday following the announcement of the UK’s next prime minister.

GBP/USD Exchange Rate Experiences Poor Trade During Conservative Election

UK politics were front and centre at the start of the week, with investors cautious in the morning ahead of the announcement of the new prime minister Liz Truss.

GBP investors mood was dampened further by the composite PMI for August, finalised figures reported a contraction in the private sector. This contraction and generally downbeat domestic headlines fuelled expectations that the UK is heading for recession.

Now Liz Truss has won the Conservative leadership there is speculation that she will be introducing an energy freeze.

Daily Telegraph writers Ben Riley-Smith and Tony Diver gave insight based on insider information:

‘One energy company source said the idea has been ‘extremely actively explored’ by Truss campaign figures and that Kwasi Kwarteng, the Business Secretary tipped to become Chancellor if Ms Truss wins, appeared ‘very open’ to options for a freeze.’

If true, this will be a welcome relief for British families and the incentive GBP investors have been waiting for.

US Dollar (USD) Trading Higher Amid Risk-Off Mood

The US Dollar (USD) was trading robustly on Monday. A largely risk-off mood saw the safe-haven greenback firm.

US job data released on Friday was mixed. In a Guardian article written by Dominic Rushe on Friday he reported:

‘The remarkable strength of the jobs market has the Federal Reserve worried that as employers compete for workers, wage inflation will keep driving prices higher.’

However, this didn’t dissuade investors. In fact, this stoked speculation that the Federal Open Market Committee would continue with its aggressive interest rate hikes. This was supported by Nancy Vanden Houten, lead US economist at Oxford Economics as she wrote to investors:

“The modest slowdown in employment growth in August may be welcome by the Fed, but it won’t prevent further sizable rate hikes in the months ahead”.

Current bets would suggest that investors are expecting a 75bps rise. This, combined with raised US bond yields underpinned early morning trading on Monday.

If markets remain risk off this is likely to continue to favour the safe-haven currency.

GBP/USD Exchange Rate Forecast: Could Poor Political Decisions Dent GBP?

On Tuesday the British Retail Consortium will print the retail sales monitor, which is forecast to drop to 0.3% in August, from 1.6%. This plummet in sales could see investors retreat as sales figures continue to fall, stoking recession fears.

Aside from this, GBP trading will be driven by domestic headlines as the country awaits much needed action from their new prime minster. Could Liz Truss’s ‘unpopular decisions’ cause volatility in the pound?

Also, on Tuesday the US ISM non-manufacturing PMI will print, will give a better idea of how well the US economy is fairing in August. This in turn could impact the Federal Reserve’s rate hike plans, as a slowing of growth could stoke fears about the countries weakening economy.

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TAGS: Dollar Pound Forecasts