GBP/USD marches firmly to fresh-weekly high but shy of 1.2600 on UK political turmoil
- The GBP/USD remains positive on the week, up by 0.82%.
- The UK Prime Minister Boris Johnson won a no-confidence vote, and the GBP reacted positively.
- The World Bank reduces the global economic growth from 4.1%.
- UK’s PMI remains in expansionary territory, showing the economy is slowing.
- The US Trad deficit narrowed the most in nearly 9 ½ years.
The British pound climbs for the second straight day amidst two days of a volatile trading session, courtesy of political issues, mainly the Boris Johnson no-confidence vote on Monday. At the time of writing, the GBP/USD is trading at 1.2593, gaining 0.54%.
UK’s PM Boris Johson to remain as Prime Minister, the GBP/USD edges up
So far, the GBP/USD remains buoyant, courtesy of Boris Johnson’s victory, although by a tight margin, spurred a brief relief rally on the pound. Also, falling US Treasury yields narrow the spread between the 10-year US and UK bond yields. However, the sentiment shifted negative, as European bourses closed with losses, while US equities showed some weakness, except for the Russell 2000, up by 0.53%.
After Wall Street opened, the World Bank lowered the global growth forecast to 2.9% from 4.1% in January. World Bank President David Malpass said that “the risks of stagflation, the Russo-Ukraine war, and lockdowns in China have been hammering growth and that a recession will be hard to avoid for many countries. Meanwhile, though global inflation is expected to moderate next year, it will likely remain above target in many economies.“
Worth noting that in the Asian session, the Reserve Bank of Australia (RBA) hiked rates by 0.50%, adding to the list of “aggressive” central banks.
In the meantime, the US Dollar Index, a gauge of the buck’s value vs. six peers, records minimal losses of 0.01%, sitting at 102.401, a tailwind for the GBP/USD.
Economic data: UK’s data boost the pound, and the US Trade deficit shrinks
The UK economic docket featured the S&P Global/CIPS UK Services and Composite PMIs indices. The Services rose by 53.4, higher than expected but trailed the 58.9 April’s reading. Composite rose by 53.1, showing that activity is slowing, meaning that the UK stagflationary scenario looms.
Earlier, UK Retail Sales shrank by 1.5% YoY, vs. a -1.70% a year before. Helen Dickinson, BRC’s CEO, said, “Sales continued to see declines as the cost-of-living crunch squeezed consumer demand. Higher value items, such as furniture and electronics, took the biggest hit as shoppers reconsidered major purchases during this difficult time.”
The US economic docket featured the Trade Balance, which showed that the deficit narrowed by the most in almost nine and half years in April, as exports jumped to a record high of $252.6 billion vs. March’s $244.1 billion. Late in the week ahead, Initial Jobless Claims, inflation figures, and Consumer confidence would give GBP/USD traders the current status of the US economy.
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