GBP USD Exchange Rate: The Week Ahead June 13th

GBP USD Exchange Rate: The Week Ahead June 13th

The pound posted a second consecutive week of declines against the dollar amid a barrage of political and economic headwinds.

Having briefly rallied against the dollar on Monday following confirmation that Prime Minister Boris Johnson’s future would be decided by a confidence vote, the eventual outcome unnerved investors sending the UK currency tumbling.

Despite winning enough votes to remain PM, Mr Johnson’s narrow victory failed to cement his position after 148 of his MPs voted against him.

By Tuesday, political uncertainty had pulled GBP USD down to a near three-week low.

The pound found itself hovering just above 1.23 on Friday – its lowest level against the dollar since mid-May – as the UK’s gloomy growth outlook and strong US inflation data compounded the fragile political climate.

The dollar was buoyed by the May CPI print, which showed that US consumer prices accelerated, adding weight to expectations that the Federal Reserve will continue with its 50 basis point interest rate hikes to tackle inflation.

BoE interest rate decision in focus for the pound

If, as expected, the Bank of England (BoE) hikes interest rates on Thursday for the fifth time since December, it will mark the central bank’s steepest run of rate rises in 25 years – and with UK inflation heading for double digits, the BoE is likely to extend this run in the coming months.

Economists are forecasting a quarter percentage point hike, which would lift the Bank Rate to 1.25% – its highest level since January 2009 when the domestic economy was strangled by the global financial crisis.

BoE rate-setters will be mindful of government plans to cut taxes and help households through the cost of a living squeeze – conditions that could make them lean towards another hike.

However, most economists foresee a split vote, as there has been on other rate decisions in recent months – albeit in favour of raising borrowing costs.

Fed interest rate decision in focus for the dollar

It’s a similar story across the Atlantic, with the Fed announcing its June interest rate decision on Wednesday when Chair Powell briefs the press following the central bank’s two-day meeting.

The US central bank is widely expected to be more aggressive than its UK counterpart by hiking interest rates by a half percentage point.

However, red-hot May inflation data – which saw the annual rate rise to its highest level since December 1981 – has raised speculation that Fed officials could turn the policy screw even tighter than expected or forecast a faster pace of future rate hikes.

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