GBP USD Exchange Rate Starts Week in a Desultory Fashion 

GBP USD Exchange Rate Starts Week in a Desultory Fashion 

The pound lacked impetus against the dollar on early Monday amid fresh post-Brexit tensions and ongoing economic growth uncertainty in Britain, before briefly advancing into the 1.23 range on the back of dollar weakness. 

Prime Minister Boris Johnson said on Monday that parliament might pass legislation that ditches some rules on post-Brexit trade with Northern Ireland. That would prompt yet another clash with the European Union and potentially apply pressure on the pound. 

A barren UK economic calendar on Monday meant Bank of England (BoE) Chief Economist Huw Pill’s comments echoed into the new week. On Friday, Pill said that interest rates would remain the BoE’s main monetary policy tool. 

The UK central bank began lifting rates in December last year, raising borrowing costs to 1.25% from a record low of 0.1% to cool inflation, which rose to a 40-year high of 9.1% in May. 

Softening inflation expectations weigh on the dollar

The dollar was on the back foot on Monday as cooling inflation expectations triggered a reassessment of the prospects for aggressive interest rate hikes. 

Bets backing aggressive rate hikes boosted the dollar recently. But with economic data indicating economic momentum is starting to cool and a drop in commodity prices, investors are dialling back those bets. 

Durable goods – items meant to last at least three years – orders placed with US factories increased more than expected in May, indicating business investment remains firm despite rising interest rates and growing concerns about the economy.  

Orders were up 0.7% in May following a revised 0.4% increase the previous month, the Commerce Department reported on Monday.  

New orders for capital goods made in the US and shipments rose solidly last month, signalling sustained strength in business spending on equipment in Q2. However, further interest rate hikes and tighter financial conditions could slow momentum. 

Orders for non-defence capital goods (excluding aircraft) – a key proxy for business spending – increased 0.5% in May, the Commerce Department reported on Monday, gaining 0.3% in April. 

The US pending home sales rebounded in May, reversing a six-month fall. Sales rose 0.7% in May according to the monthly index released on Monday by the National Association of Realtors. 

Looking ahead

BoE official Sir Jon Cunliffe has a speaking engagement scheduled on Tuesday morning. The British Retail Consortium (BRC) Shop Price Index – a measure of price changes in the popular retail outlets in the UK – is slated for release on Tuesday evening.  

Three notable data sets hit the headlines in the US on Tuesday: consumer-confidence for June, the housing price index for April, and the S&P/Case-Shiller home price indices for April. 

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