ExchangeRates.org.uk - The Pound to Dollar (GBP/USD) exchange rate has held a firm tone in global markets with the Pound to Dollar (GBP/USD) exchange rate peaking at 11-month highs just below 1.30 before settling around 1.2980.
According to Scotiabank; “A clear move above 1.30 suggests a retest of last July’s 1.3155 high may develop.” SocGen added; “The pair looks poised to inch higher towards next projections at 1.3015 and last year peak of 1.3140/1.3155.”
The Pound to Euro (GBP/EUR) exchange rate also hit 11-month highs just above 1.1920 before a limited correction to 1.19.
Markets do not expect a further ECB interest rate cut at this week’s policy meeting. The dollar overall was unable to make headway on Monday as traders continued to discuss the US outlook. There was no significant change in interest rate expectations, but markets also had to consider whether the there had been a decisive shift in the political narrative.
Following the failed assassination attempt on former President Trump, there were expectations that the likelihood of November victory had increased. Some betting platforms suggested that the chances of a Trump win were now around 70%. The Republican convention starts on Monday with rhetoric watched closely.
According to Scotiabank; “Market trends suggest investors expect the shooting attempt will galvanize support for Trump’s candidacy in the November election.”
The consensus is that a Trump victory would lead to a looser fiscal policy and increased trade tariffs, both factors which could underpin the dollar. As far as the US economy is concerned, the US New York Empire manufacturing index edged lower to -6.6 for July from -6.0 previously and compared with consensus forecasts of -5.5. New orders declined slightly for the month while employment and price components were little changed while companies were slightly less optimistic over the outlook.
There was no change in Federal Reserve pricing with markets pricing in over a 90% chance of a September rate cut. Rabobank’s senior FX strategist Foley commented; "There's still a lot of ground to be covered between now and November and a lot of uncertainty about what the Federal Reserve will do in the coming months." She added; "On one hand you have increased likelihood of the Fed cutting in September and on the other hand an increased chance of a Trump presidency which suggests the interest rate cycle could be quite limited. You have these two opposing factors for the dollar in the near term."
As far as the Bank of England is concerned, markets are pricing in close to 50% of a rate cut next month. Inflation data will be important with the headline inflation rate expected to decline marginally to 1.9% from 2.0% previously with the core rate unchanged at 3.5%. Weaker than expected data would trigger renewed speculation over an August rate cut.
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