The Pound US Dollar (GBP USD) exchange rate trended higher this morning as markets fear a re-escalation in geopolitical tensions between the US and North Korea.
Despite the angst appearing to subside over recent weeks, the successful launch of a missile by Pyongyang over the weekend threatens to destabilise the situation once again.
Analysts signal that the most recent launch suggests a major advance in North Korea’s intercontinental ballistic missile (ICBM) programme, with the rogue nation one step closer to its goal of obtaining a nuclear weapon with the ability to strike targets in the US.
Donald Trump has previously warned that the US is willing to take military action should it feel that it is under threat, and whilst observers still say that this is unlikely at this time, Trump’s desire to place further sanctions on North Korea could lead the US to butt heads with China, Pyongyang’s main political ally.
USD investors fear that this could have major implications for the US economy if China decides to push back with trade restrictions.
Meanwhile, the Pound’s advance was slowed slightly today by the release of a report by the Chartered Institute of Personnel and Development (CIPD) suggesting that average pay will only rise by 1% in the UK this year.
With inflation currently at 2.3% and set to rise even further over the coming months, this presents a very real fall in wages for UK households, with analysts predicting that living standards will decline over the next twelve months.
Investors are fearful that this will lead to a fall in consumer spending as families are forced to tighten their belts, which could negatively impact the UK’s all important services sector, a major contributing factor to the resilience of Britain’s economy since the Brexit vote.
Looking ahead, the GBP USD exchange rate may strengthen on Tuesday as the UK’s latest Consumer Price Index is expected to show that inflation surged from 2.3% to 2.6% in April, with markets hopeful that it will prompt the Bank of England (BoE) to tighten monetary policy.
Meanwhile, the US Dollar may soften tomorrow as the US industrial sector is expected to report that production fell from 0.5% to 0.3% last month.
Current Interbank Exchange Rates
At the time of writing the GBP USD exchange rate was trending around 1.2917 and the USD GBP exchange rate was trending around 0.7741.