Pound US dollar exchange rate: GBP carries on rising after May sees off Tory rebels

Pound US dollar exchange rate: GBP carries on rising after May sees off Tory rebels

Pound US dollar exchange rate: GBP is building on yesterday’s gains (Image: GETTY)

Sterling is riding on a wave of optimism this morning with currency markets buoyed by a sense of optimism following “Teflon” Theresa May’s latest victory over her detractors. Nevertheless, although the Prime Minister managed to fight off the no-confidence motion in her leadership, pound traders may be asking themselves what – if anything – has changed this morning. With a large question mark still hanging over the ability of Mrs May’s Brexit agreement to pass through Parliament in the New Year, traders seem content to buy back into the pound on the basis of a perceived sense of stability – however temporary it may prove to be. The US dollar, meanwhile, is weathering some downside pressure as investors flee the safe-haven currency in search of higher-yielding ones, such as the Australian and New Zealand dollars. 

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Optimism over the US and China reaching a consensus over trade issues, in particular tariffs on US-made cars imported into China, is the main driver behind this ‘risk on’ flight from safety.

This has weakened the dollar and allowed the pound to rise in the pound US dollar pairing.

Exacerbating this dollar weakness has been two days of solid stock market rebounds, with investors pumping money into equities as China reportedly plans to allow greater foreign penetration of its markets.

Further dampening demand for the US dollar is the ongoing sense of a slowing US economy following yesterday’s inflation stats, which revealed price pressures had slowed to a nine-month low.

Slowing inflation and payrolls figures do not auger well for the Federal Reserve sticking to its planned series of rate hikes in 2019, and this has caused currency traders to reconfigure their projections for next year, resulting in downside pressure on USD.

This afternoon, we will find out the latest jobless claims figures from the US, with current indications pointing towards a slight increase in the number of continuing claims, which would indicate a weakening of the labour market.

Later still will be the release of November’s US budget statement, with expectations of a sharp rise in the monthly deficit – to -$188bn – which may cause concern for economists as it indicates the US government is spending above its means.

In the absence of any noteworthy UK data today it is likely to be a case of the pound US dollar exchange rate remaining at the mercy of Brexit developments, once again.

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