GBP USD Exchange Rate Retreats Toward Two-Year Lows  

GBP USD Exchange Rate Retreats Toward Two-Year Lows  

The pound rallied against the dollar during the second half of last week. It fell below 1.19 for the first time since the start of COVID-19.  

Boris Johnson’s resignation provided the UK currency with a welcome respite from concerns about future UK economic growth. However, political uncertainty tripped on Monday as investors brace for a leadership contest to determine his successor. 

The Prime Minister’s resignation intensified economic uncertainty at a time when red-hot inflation, the risk of a recession and Brexit place strain on the economy. 

Whoever he passes the baton onto must wrestle with tax and spending challenges without worsening the inflationary pressure on the economy. 

Mr Johnson, now acting in a caretaker capacity, pledged not to make any significant decisions while his party chooses its next leader. 

According to market analysts, the pound may lack direction until a new Prime Minister takes the keys to 10 Downing Street. 

Dollar surges on rate rise outlook

A data light calendar on both sides of the Atlantic on Monday meant the dollar pushed higher by tailwinds generated by Friday’s strong US job market report. 

The upbeat jobs figures eased some of the recessionary fears that started to raise questions about the pace of Federal Reserve policy tightening. 

On Friday, Atlanta Fed President Raphael Bostic said he “fully” supports additional three-quarters of a percentage point rate hike at the central bank’s July policy meeting. 

“We can move by 75 basis points at the next meeting and not see a lot of protracted damage to the economy,” Bostic told CNBC. 

By Monday, the dollar surged as investors raised bets on the prospect of aggressive interest rate rises by the Fed that would take borrowing costs higher than its peers. 

Looking ahead

The British Retail Consortium (BRC) like-for-like retail sales data released in the UK overnight on Monday. 

Bank of England governor Andrew Bailey speaks about the economic landscape on Tuesday at an event hosted by the Official Monetary and Financial Institutions Forum. 

Federal Reserve Bank of New York President John Williams attended a moderated discussion at the “Last Call on LIBOR: Final Steps to Transition” conference. Last week, he echoed the strong language Fed rate-setters have been using to underscore their determination to cool inflation from its current multi-decade high. 

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