Conservative leadership contest drives sterling rates
The pound to US dollar exchange rate remains at the lower end of its recent trading range with levels sitting below 1.26 for the GBP vs USD pair. Whilst the Bank of England will meet this Thursday to discuss interest rates the markets are likely to be more interested in the leadership contest for the next British Prime Minister. This is a key moment for the UK as Brexit remains the main driver for GBP to USD exchange rates. The pound is likely to see considerable market reaction from the choices that are made by the next Prime Minister.
The pound has fallen sharply in recent weeks following the resignation of Theresa May leaving a layer of uncertainty over how the Brexit process will now move forward. The favourite Boris Johnson has indicated that he would ensure Britain is out of the EU by 31st October 2019 whilst also leaving the option of a no deal Brexit firmly on the table. As we have seen before in these last few years the prospect of a no deal Brexit leaves sterling on shaky ground with significant short term disruption expected.
Bank of England interest rate decision
The Bank of England are expected to hold interest rates at current levels although any commentary from Bank of England Governor Mark Carney could see the pound react. The Bank of England have produced some gloomy forecasts in the event of a no deal and the central bank will likely have something further to say about this prospect as we approach 31st October. Mark Carney has the ability to cause market reaction and as the Brexit debate intensifies in these months ahead of the latest deadline of October 31st so too will commentary from the Bank of England leaving a volatile period ahead for pound to US dollar exchange rates.
US Fed to cut interest rates?
The US dollar meanwhile retains its status as a safe haven currency which has seen the dollar soar higher in recent weeks. The US Federal Reserve has signalled its intention to cut interest rates as the uncertainty surrounding the US China trade war continues. With tensions running high between the US and China and an expectation that more trade wars could be seen across other borders investors continue to favour the US dollar. Any further escalation in the trade war will likely be seen as negative for the global economy with more trade barriers in place.
If you have an upcoming currency exchange and would like to learn more about the factors that may affecting rates, please feel free to contact me directly using the link below. I look forward to hearing from you.