The pound – which slid to a two-year low against the dollar on Wednesday – bounced on Boris Johnson’s resignation plan.
The UK currency rallied on Thursday after news broke that the embattled Prime Minister would quit as leader of the Conservative Party after dozens of ministers resigned, effectively making his job untenable. He will remain in the post while the Tories decide on a new leader.
GBP USD briefly edged above 1.20, having fallen into the 1.18 range for the first time since March 2020 amid mounting fears for the future of Britain’s economy.
The Bank of England (BoE) said on Tuesday that Britain’s economic prospects had “deteriorated materially” since Russia invaded Ukraine in February.
Speaking at an event on Thursday, BoE policymaker Catherine Mann said uncertainty about entrenched inflation means central banks should raise interest rates quickly and aggressively. “What the research shows is when there is uncertainty about persistence versus transitory nature of inflation dynamics, it’s important to front-load policy,”
Dollar basks in bright outlook
Global growth fears and US Federal Reserve hawkishness boosted the dollar recently. Some investors bet more gains are on the horizon. Market analysts expect the dollar to remain supported amid a cycle of accommodative conditions; aggressive Fed policy tightening may thrust the global economy into a recession, raising the US currency’s safe-haven appeal.
Released on Wednesday, the Federal Open Market Committee’s (FOMC) June meeting minutes underscored the US central bank’s determination to tackle inflation even if it slows an economy already heading for a recession.
FOMC rate-setters said the July policy meeting could result in another 50 or 75 basis point hike following the 75 basis point move they voted for last month.
The minutes said: “In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives,”
“In particular, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting.”
With the UK economic calendar empty on Friday, investor attention will turn to the nonfarm payrolls report for June. This report offers a fresh update on how the US economy is performing in the face of inflation and recession fears.
The headline nonfarm payrolls figure slid recently, with the May reading of 390,000 representing a 13-month low. Economists expect that trend to have continued last month, falling to 268,000.
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The post GBP USD Exchange Rate Rebounds on Johnson’s Resignation Plan appeared first on Pound Sterling Forecast.
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