Pound US Dollar Exchange Rate News: GBP/USD Climbed as Liz Truss’ Steps Down

October 20, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Climbed as Liz Truss’ Steps Down

Pound (GBP) Recovered as PM Liz Truss Resigns

The Pound (GBP) failed to muster much support on Thursday in the wake of a turbulent day in Westminster on Wednesday. Home Secretary Suella Braverman followed Kwasi Kwarteng in leaving Liz Truss’ cabinet after just 43 days in office. Braverman was forced to resign and in her resignation letter, accused the Truss government of losing direction.

The chaotic scenes that followed the fracking vote on Wednesday evening, with reports of manhandling, shouting, and bullying, followed a fractious supposed vote of confidence for the Tory government. However, the chaos climaxed with the news of Liz Truss stepping down as Prime Minister, after only 45 days. Her reign saw market meltdowns in the wake of the disastrous mini-budget, and confidence plummet on the back of unfunded fiscal plans. Truss becomes the shortest-serving prime minister is history.

However, despite the market reacting positively to Truss’ resignation, a return to political uncertainty is likely to weigh on the Pound. Neil Wilson of Market.com, warns that the Tory party will struggle to stay in power, which only brings further chaos to a tumultuous market. He added:

‘The economic policies were already dead in the water, so the market doesn’t have a huge amount of genuine new information to move on despite the seismic events of the last 24 hours.’

Meanwhile, capping any significant gains for Sterling is news that the Bank of England (BoE) appeared dovish in his speech at Imperial College London. In regard to raising interest rates in the future, BoE Deputy Governor Ben Broadbent said that things would ‘remain to be seen’. Broadbent said:

‘The pandemic raised the global demand for goods and reduced their supply; Russia has cut back severely its supply of gas to Europe. These have had dramatic effects on relative prices.

‘In particular, import prices have risen significantly compared with the price of UK output. This has unavoidably depressed real incomes: the volume of output may have just about recovered to pre-Covid levels, but its consumption value has not.’

US Dollar (USD) Quiet Despite Positive Employment Data

The US Dollar (USD) found it difficult for demand on Thursday as the cautious market was buoyed on improved risk appetite.

However, labour market data provided some support the ‘Greenback’ as the initial jobless reports dropped as the number of Americans filing for unemployment benefits fell by 12,000. The results were well below market expectations and bolster further interest rate hike bets from the Federal Reserve.

underlying concerns are likely to remain in investors’ peripheries. Concerns in China over delayed GDP are continuing to weigh on global recession fears, as markets remain dubious over the health of the world’s second largest economy.

Meanwhile, Russia’s relentless attack on Ukraine’s infrastructure, as well as drone-led attacks on civilian targets, could sap market moods, and bring a return to safe-haven flows.

GBP/USD Exchange Rate Forecast: Political Uncertainty to Weigh on the Pound?

Looking ahead, the Pound US Dollar exchange rate could fluctuate further on political volatility. Despite the uptick in market moods in the wake of Truss stepping down as prime minister, the returning political circus of her replacement could sap demand.

Meanwhile, several Fed speeches are due to take place on Thursday. A continued hawkish rhetoric will likely provide some support the ‘Greenback’.

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TAGS: Pound Dollar Forecasts