The Pound (GBP) has fallen by -0.6% against the US Dollar (USD) today, in the wake of growing uncertainty about Brexit.
GBP traders have been rattled by earlier remarks from Bank of England (BoE) Governor Mark Carney.
Considering the effects of a ‘no deal’ Brexit on the UK economy, Mr Carney warned that such a Brexit could cause major damage to the UK financial sector.
(Last updated 17th July, 2018)
Can GBP/USD Exchange Rate Advance if UK Inflation Rate Rises?
The Pound (GBP) has made a minimal advance against the US Dollar (USD) today, before the release of UK inflation rate data on Wednesday.
Sterling’s current limited movement is down to the latest UK wage growth data, which has shown a slower pace of earnings growth in May.
This data will be considered in the context of Wednesday’s UK inflation rate figures for June, which have the potential to trigger GBP/USD exchange rate volatility.
On the plus side, if the inflation rate rises above forecasts then the Pound could appreciate; this would boost the chances of a Bank of England (BoE) interest rate hike.
On the down side, even if inflation rises and is seen as putting more pressure on the BoE, it could be considered in the context of UK households facing tougher conditions.
The BoE has previously resisted raising interest rates when inflation has been above its current level, so higher inflation on Wednesday might fail to boost GBP.
If inflation exceeds wage growth, this can mean wage squeeze conditions for UK households and ultimately lower consumer spending and tougher retail conditions.
US Dollar to Pound (USD/GBP) Exchange Rate Turbulence Forecast on Fed Powell Testimony
The US Dollar (USD) has fallen against the Pound (GBP) today, in the lull before today and Wednesday’s testimony by Federal Reserve Chair Jerome Powell.
As the head of the US central bank, Mr Powell holds influence over currency trader opinions and could cause a US Dollar rally depending on his statements.
In the best-case scenario for USD traders, Mr Powell will discuss the Fed’s monetary policy plans and could hint at higher interest rates coming in the near-term.
There have already been two US interest rate hikes in 2018 and traders are looking out for two more before the end of the year.
Explicit date-naming is unlikely, but any indication of upcoming rate hikes could still be enough to raise trader confidence and boost the USD/GBP exchange rate.
Are USD/GBP Exchange Rate Losses ahead on US Goods Orders Data?
Looking beyond the impending remarks from Fed Chair Jerome Powell, the US Dollar to Pound (USD/GBP) exchange rate could also be affected by orders data on 26th July.
This will be a measure of durable goods orders in June; order levels are predicted to rise from -0.6% in May to 2.5%, which would be a major upgrade.
Durable goods represent significant purchases for businesses and consumers, as the field includes products like household appliances, electronics and vehicles.
If orders for these long-lasting and sometimes high-ticket items rise, then the US Dollar could also appreciate against Pound Sterling.
Increasing orders suggests that US consumers are more confident that they will be able to afford or repay the costs of durable goods, implying economic strength.