GBP/USD Soars On UK Data, Trump’s Swipe At Fed

A stronger pound and disappointing results from BHP Billiton (LON:BLT) ensured that the FTSE remained in the red across the session.

The pound charged northwards versus the dollar on Tuesday, rallying over 0.6%, in it biggest daily rise in a month, as both pound strength and dollar weakness played a part in pushing the pair back above $1.2850.

Biggest government surplus in 18 years

The pound received a boost after data showed that the UK government enjoyed its biggest surplus for 18 years amid a decline in borrowing and an increase in tax receipts.

Total tax receipts are up an impressive 4.5%, indicating that the improvement in public sector finances could be thanks to permanent factors rather than temporary ones. This is some welcomed good news for the Chancellor before the Autumn budget and gives him a good amount of wiggle room for extra spending ahead of Brexit.

With a promised rise in NHS spending and local authorities struggling, the improvement in public sector finances has come at the eleventh hour for Chancellor Hammond ahead of possible Brexit turmoil.

Also aiding the pound was a weaker dollar. The dollar was under pressure across the session as trade tensions thawed between the US and China ahead of trade talks tomorrow, reducing demand for safe havens such as the dollar and after President Trump took another swipe at the Fed.

Pot calling kettle black

This is not the first time tht Trump has criticised the Fed for hiking rates and it is unlikely it will be the last. What is interesting is the amount of attention dollar traders have paid to the comments, despite Trump talking up the dollar in a tweet only a week ago. Trump’s comments come at the same time that he criticised China and the EU of currency manipulation, bring the phrase 'pot calling the kettle black' to mind, how else can you force your currency to drop 1% in the space of 12 hours?

Whilst the dollar is trading lower across the board today, this move could be a short-lived reaction. With Fed minutes due to be released tomorrow, which are widely expected to be hawkish, pointing towards four rate rises across the year, we could see an unwinding of short term bets against the dollar.

Whilst the stronger pound is unfavourable for the multinationals on the FTSE, weighing on the UK index; the weaker dollar offers support to the multinationals listed in the US, as profits earned in foreign currencies will have a higher value.

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Written By: City Index