Sajid Javid Resigns as Chancellor
The pound to US dollar rate shot well over the 1.30 level yesterday after briefly retreating. The trigger that sent it higher was pulled by Sajid Javid, who shocked Westminster – and currency markets – by quitting as Chancellor of the Exchequer amid Prime Minister Boris Johnson’s cabinet reshuffle. Mr Javid rejected the prime minister’s order to fire his team of aides, forcing him to hand in his notice just four weeks before his first Budget. He will be replaced by Chief Secretary to the Treasury Rishi Sunak – who was a junior housing minister just seven months ago.
So, why did the pound take comfort from the surprise news? Investors believe that Mr Sunka will implement looser monetary policy measures that enable Mr Johnson to deliver his infrastructure spending pledge. This would encourage the Bank of England to resist monetary easing.
US Consumer Prices Rise in January
US underlying consumer prices (excluding volatile food and energy) rose in January, as households paid more for rents and clothing. The consumer price index picked up to a seasonally adjusted 0.1% last month, according to the Labor Department. The data supported Fed Chair Jerome Powell’s testimony to Congress earlier in the week, during which he told lawmakers that the “economy is in a very good place, performing well,” adding “over the next few months, we expect inflation to move closer to 2%, as unusually low readings from early 2019 drop out of the 12-month calculation.”
The US dollar also benefitted from yesterday’s initial jobless claims release, which revealed that the number of Americans filing for unemployment benefits increased less than expected last week. The data indicates ongoing strength in the US jobs market, which could help to maintain the country’s economic expansion.
A raft of economic data from the US today includes retail sales figures, which are forecast to rise 0.3% in January as was the case in December. The retail sales control group – the Bureau of Economic Analysis’ gross domestic product component – is predicted to drop to 0.3% from 0.5% in December. While sales (excluding autos) are projected to increase 0.3% following Decembers 0.7% gain.
A lack of data from the UK means investors in the pound will continue to digest the fallout from Mr Javid’s dramatic resignation.
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