- Pound US Dollar Steady at 1.2834 – US Dollar Pound Hits 0.7817
- UK GDP on the Horizon – How will the Pound be Affected?
- Markets Await Comments from Fed Chair Janet Yellen – ‘Greenback’ Steady in Anticipation
The Pound to US Dollar exchange rate remained predominantly steady this morning, with both the UK and US experiencing their own respective hullabaloos.
The Pound fluctuated with the release of today’s Brexit policy papers, one of which discussed the future relationship between the European Court of Justice (ECJ) and the UK courts.
The paper promised the end of the ECJ’s ‘direct jurisdiction’, a phrase which raised the question of exactly what ‘indirect’ jurisdiction the ECJ the UK will be left with after Brexit.
Some claimed that the paper was a concession of the UK’s Brexit position, as it allowed for the possibility that the ECJ would, in future, maintain a semblance of influence over the UK’s proceedings.
This was, however, dismissed by Justice Minister Dominic Raab, amongst others, who asserted that the words ‘direct jurisdiction’ simply meant that both the UK and EU judges would watch each other with ‘half an eye’ after Brexit has taken place.
The response to this news was, regardless, negative; putting the Pound under a small degree of pressure.
UK GDP on the Horizon – Pound (GBP) Volatility Forecast
Tomorrow will feature the release of the UK’s 2nd estimate Q2 gross domestic product (GDP) figures, the outlook of which remains somewhat mixed. Markets currently estimate that the annual figure will come in at 1.7%, consistent with the 1st estimate, but still lower than the 2% final figure from the previous period.
The quarter-on-quarter figure, however, is expected to beat the previous period’s by printing at 0.3% (up from 0.2%).
GDP growth is a broad indicator of the overall health of said economy, so if either of these figures disappoint then Sterling will very likely be encumbered. Indeed, many are worried that the recent revision of June’s retail sales figure down from 0.6% to 0.3% could be indicative of bad things to come; negatively impacting the UK’s growth during this quarter.
Jackson Hole Symposium – Yellen Speech Liable to Move US Dollar (USD)
Friday’s Jackson Hole symposium is fast approaching and markets are becoming increasingly eager to hear what Fed Chair Janet Yellen has to say about the trajectory of the US Dollar.
Whilst it is currently deemed unlikely that Yellen will discuss the economy or indeed monetary policy, many ponder the possibility that she will address ‘systemic risks’ – much like those mentioned in the July monetary policy meeting – which could, in theory, provide an insight into the possibility of another rate hike in 2017.
Economist Lewis Alexander, from Normura’s Instinet revealed a similar sentiment:
‘If Yellen makes this point in her Jackson Hole speech, we think that reinforces the likelihood that the FOMC will raise rates again at their meeting on December. Linking interest rate decisions to concerns about financial stability would be new. Federal Reserve officials have long argued that prudential regulation should be used to address financial stability and that monetary policy should focus on the Federal Reserve’s macroeconomic objectives’.
This would ultimately be viewed as hawkish, allowing the US Dollar room to capitalise against Sterling.
Others, however, remain unconvinced that such an event will occur, instead claiming that the Fed’s monetary committee has already communicated what it needed and that Yellen will, instead, remain conservative in her choice of financial topics.
There is also some speculation regarding the future for Yellen as Fed Chair: February will signal the end of her term and there remains a great deal of discussion regarding if she will continue for another term, or step down.
Whilst it is unlikely that she will reveal anything regarding the end of her term, any hint that she will be leaving will be enough to cause extreme volatility for the ‘Greenback’.
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