The pound to US dollar interbank exchange rate has picked up after a positive day yesterday, with rates now sitting over 1.21 for the GBP to USD pair. UK retail sales data rose in July by 0.2% to 0.9% which was well ahead of an expected fall of -0.2%. This positive data is welcome for the UK and comes at a time when Brexit uncertainly is keeping the pressure on sterling exchange rates. The latest in the Brexit story is that a number of MP’s are seeking cross-party support to vote against the government in a vote of confidence.
The leader of the opposition party Jeremy Corbyn has written to MP’s to ask them to select him as a caretaker Prime Minister to try and prevent a no deal Brexit. Whether this will materialise, and whether or not parliament is in fact even able to stop a no deal Brexit from happening continues to keep the markets guessing with considerable volatility for GBP vs USD exchange rates. For the time being, Boris Johnson is steering the country in readiness for a no deal outcome to break the political deadlock in parliament. We could see high volatility on the back of all the latest Brexit developments with the clock counting down as we approach the 31st October deadline.
Meanwhile, the US dollar retains its safe haven status with investors moving to the safety of the dollar amidst current major global uncertainty. US retail sales data released yesterday came out better than expected at 0.7% which was higher than the 0.3% reading in June. The US Federal Reserve (Fed) cut interest rates at the last meeting at the end of July by 0.25%, and there is a high chance that the Fed will look to cut interest rates again at next meeting on the 17th-18th September.
There is a chance that there could even be a 50 basis point cut, although such an outcome will depend on the strength of the economic data in the weeks ahead. For the time being it is almost entirely priced in that there will be a 25 basis point cut in September. In the meantime the Fed minutes will be released on Wednesday evening.
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