Daily Currency News: Pound Sterling to US Dollar (GBP/USD) Exchange Rate Drops as Tariffs Boost USD Appeal

June 19, 2018 – Written by James Fuller

Monday’s trading session saw the Pound to US Dollar exchange rate open in the region of 1.3271 and close down lower around 1.3258.

This slight deterioration came after the news that the British Chambers of Commerce (BCC) had downgraded its UK economic growth forecasts for both 2018 and 2019.

This year’s predicted growth levels were cut from 1.4% to 1.3%, while 2019’s estimated levels of growth were reduced from 1.5% to 1.4%.

Elaborating on the gloomy predictions, BCC Head of Economics Suren Thiru said:

‘While Brexit uncertainty and the weakness in Sterling have weighed on overall UK growth, it is the failure to deal with the longstanding structural issues from weak productivity to the deep imbalances in the UK economy that continue to undermine the UK’s growth potential.

‘The risks to the outlook are on the downside. A messy departure from the EU would likely slow UK GDP growth further over the medium term.

‘The prospect of an escalating trade war is now a key downside risk to our forecast as it could mean much weaker export and business investment growth than implied by the current forecast.’

On the other side of the pairing, the US Dollar was supported by residual optimism from last week’s Federal Reserve interest rate decision.

Fed policymakers voted for an interest rate hike from 1.75% to 2% on Wednesday evening, while hinting at two more rate hikes coming later in the year.

Before the Fed event, economists hadn’t been completely settled on whether there would be a total of three or four interest rate hikes in 2018.

Although four rate hikes this year aren’t set in stone, a suggestion of four hikes straight from the source was enough to push the US Dollar up against the Pound and other peers.

Brexit Difficulties Drag GBP/US Exchange Rate Down Today

The Pound (GBP) has fallen by -0.8% against the US Dollar (USD) today, in addition to posting moderate losses against most other currency peers.

Currency traders have mainly been focusing on the US today, but over in the UK there has been negative news concerning the ongoing Brexit process.

City Index’s Fiona Cincotta has highlighted the current problems surrounding Brexit, saying:

‘The Pound [is] bogged down by domestic problems and [has] declined below $ 1.32 for the first time since November.

Theresa May continues to struggle to get any Brexit-related decision approved by the Parliament and a vote by the Lords is about to make her life even more difficult because it will require that the Commons approve any Brexit deal reached between the government and Brussels.’

USD/GBP Exchange Rate Hits 7-Month High as US-China Trade War Escalates

The US Dollar (USD) has been a dominant currency today, rising by 0.7% against the Pound (GBP) and making greater gains elsewhere.

This strong performance puts the USD/GBP exchange rate at £0.7599, the best exchange rate since November 2017.

The USD has been in such high demand because of the news that President Donald Trump has imposed fresh tariffs on China, on around $ 200bn worth of imports.

It is worth noting that a number of the US and China’s proposed import tariffs haven’t actually been put into action yet, but the potential for punitive charges has had the same effect as the real thing.

Although the tariffs risk causing long-term damage for the US economy, the US Dollar has still risen because inflation could rise under tariff conditions, which will then increase the odds of more interest rate hikes from the Federal Reserve.

It is still possible that the US and China will come to a de-escalating agreement, but for now the US Dollar has benefited from the potential impacts of a prolonged trade war.

GBP/USD Exchange Rate Forecast: Will Pound Sterling Appreciate on Rising Factory Orders?

This week’s major UK economic data will be Thursday’s Bank of England (BoE) interest rate decision.

Before then, the Pound to US Dollar (GBP/USD) exchange rate could be affected by Confederation of British Industry (CBI) industrial orders data on Wednesday morning.

The reading for June is predicted to show slight growth in levels of industrial orders, with a rise forecast from -3 points in May to 1 point in June.

While this would only just be a positive reading, it would still be a step towards higher industrial orders in the future so could cause a temporary GBP/USD exchange rate rise.

Wednesday’s US economic news will consist of a speech from Federal Reserve Chair Jerome Powell, as well as a measure of crude oil stocks in the country.

Both economic events might override the effects of the UK industrial data and push the USD/GBP exchange rate higher before Thursday.

Mr Powell could raise US Dollar demand by backing reiterating support for more interest rate hikes this year. If US oil stocks are reported to have fallen, the US Dollar could also appreciate because this might increase oil prices to the benefit of US exporters.

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TAGS: Pound Dollar Forecasts