Surprise Departure of UK Chancellor Shores up Pound Sterling US Dollar (GBP/USD) Exchange Rate
Markets reacted positively to Sajid Javid’s surprise resignation from the role of Chancellor, driving the Pound Sterling to US Dollar (GBP/USD) exchange rate sharply higher.
Although the move creates the potential for fresh political uncertainty, coming mere weeks ahead of the Budget announcement, this failed to weigh on Pound Sterling (GBP) on Thursday morning.
With markets now expecting to see Downing Street exert still greater influence over the Treasury the prospect of increased spending gave GBP exchange rates a boost.
Investors took further encouragement from the unexpectedly strong nature of January’s RICS house price balance, which surged 17% on the month.
This sharp uptick suggested that the UK housing market experienced a solid resurgence at the start of 2020, benefitting from an increase in political clarity that followed the result of the general election.
USD Exchange Rates Benefit from Renewed Global Covid-19 Anxiety
Renewed market anxiety over the Covid-19 outbreak and its ultimate impact on global growth offered some support to the US Dollar (USD), meanwhile.
As the infection rate unexpectedly jumped on Thursday, with 15,152 new cases reported in China, risk appetite weakened once again.
Until the infection rate shows sustained signs of stabilisation the risk of a global slowdown driven by virus disruption looks set to increase.
USD exchange rates could find a fresh rallying point on the back of January’s US consumer price index data.
Even though the CPI is not the Federal Reserve’s preferred measure of inflation an uptick here may boost the US Dollar.
As long as inflationary pressure within the US economy appears to remain on an upward trend the GBP/USD exchange rate looks set to weaken.
US Dollar Vulnerable to Signs of Weaker US Production
With the Federal Reserve already sounding a cautious note over the economic outlook and the risk of Covid-19 any underwhelming US data could weigh heavily on the US Dollar ahead of the weekend.
Even if the latest CPI figures point towards resilient inflationary pressure the odds of a 2020 Fed interest rate cut could pick up further.
Fresh signs of weakness in January’s US industrial and manufacturing production data may drag USD exchange rates lower on Friday.
After the contraction seen in December investors are wary of the potential for another monthly decline in production, highlighting the vulnerability of the US economy as global trade slows.
Unless the manufacturing sector can demonstrate greater evidence of resilience in the face of negative global headwinds the US Dollar looks set to stumble.
A rebound in production may give USD exchange rates a fresh boost, however, as stronger economic data reduces the case for any Fed interest rate action.