The Pound US Dollar (GBP USD) exchange rate rallied this morning after the pairing briefly fell at the start of trading in reactions to the London terror attack over the weekend.
Sterling fell during the Asian trading session following a deadly terror attack in the UK’s capital on Saturday night that has cast further uncertainty over the upcoming election.
With just days to go until the UK heads to the polls in an election race that looks to be far tighter than most observers would have initial thought, the impact the recent attacks may have on the outcome is causing a lot of uncertainty for investors.
Analysts at Commerzbank said;
‘The most common voter reaction after such an event would be gains of right parties, usually more inclined to law-and-order policies. But the UK situation is different. That’s partly because PM Theresa May hardly has a law-and-order track record.’
The GBP USD exchange rate was able to recoup most of its losses by mid-morning however as the latest UK Service PMI suggested that Britain’s economic growth is likely to be more robust in the second quarter.
Despite the index tumbling from 55.8 to 53.8 last month and the sector expanding at a slower rate than the 55.0 that had been predicted analysts are optimistic that the UK’s economy is set to grow 0.5% in Q2, helping to offset the slow start to the year as Britain’s GDP fell to just 0.2%.
Meanwhile the US Dollar remains subdued following last week’s employment data, with Friday’s Non-Farm Payroll figures showing that the US economy added far fewer jobs in May than analysts had forecast.
While this is a natural consequence of the US economy nearing full employment, the fall in job creation caused concerns amongst investors that it could cause the Federal Reserve to delay a third rate hike this year.
Looking ahead the GBP USD exchange rate is likely to become increasingly volatile in the lead up to the UK election on Thursday, with any signs that the Conservatives may lose their majority likely to cause the Pound to tumble as markets fear it would complicate the Brexit process.
Meanwhile the US Dollar may cede further ground this afternoon as the US releases its own services PMI, with economists forecasting that activity will have fallen from 57.5 to 57.0 last month, with a slip likely to cast further doubts on future Fed rate hikes this year.
Current Interbank Exchange Rates
At the time of writing the GBP USD exchange rate was trending around 1.2895 and the USD GBP exchange rate was trending around 0.7754.
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