The GBP USD exchange rate is holding close to a five-week low with markets reacting positively to Donald Trump’s commitment to increase spending.
Yesterday’s speech by the President, while light on actual details, was able to increase investor optimism towards the US Dollar as he pledged to introduce major increases in government spending.
Although it is unclear exactly how his administration plans to implement his plans, Trump announced that ‘the time has come for a new program of national rebuilding’ and that he would seek to invest $1 trillion in new roads, bridges and other infrastructure projects.
While markets seem upbeat about the prospect of major spending increases, reports suggest that the infrastructure bill may have to wait until 2018. As Keefe, Bruyette & Woods Washington analyst Brian Gardner explained;
‘There have been mixed signals from the White House about how big a priority infrastructure is for the administration, we think infrastructure spending could get squeezed out by competing agenda items such as health care and tax reform.’
Meanwhile the Pound has struggled today as a report from the Institute for Fiscal Studies (IFS) predicts that household incomes in the UK will not see growth for the next two years.
The report on living standards suggests that families may find themselves £5000 a year worse off than expected as the ‘long shadow’ of the financial crisis and slow economic recovery pressures household finances.
This is unwelcome news for consumers who already face the pressures of rising inflation and low wage growth and could result in spending falling at an even faster pace than expected over the new few years.
Early signs of this downturn may be reflected in the UK’s latest Services PMI on Friday, with Sterling likely to weaken further as initial estimates predict that it will fall from 54.5 to 54.1 in February.
However, with the dramatic fall in manufacturing activity earlier this week being blamed on slowing domestic consumption, there are chances that the service sector could also tumble further than expected.
Meanwhile the US Dollar may be strengthened this afternoon by a slight fall in jobless claims, with an improving labour market seen as a major indication of future rate hikes from the Federal Reserve.
Current Interbank Exchange Rates
At the time of writing the GBP USD exchange rate was trending around 1.22 and the USD GBP exchange rate was trending around 0.81.
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