While demand for the pound remains limited amid ongoing political uncertainty, the US dollar came under pressure yesterday as President Donald Trump launched another attack on the Federal Reserve. The President appeared to imply that he could have Fed Chair Jerome Powell removed. Rising risk appetite also left USD exchange rates on the back foot as US Treasury secretary Stephen Mnuchin suggested a US-China trade deal is “90 percent complete:. If the meeting between President Trump and Chinese leader Xi Jinping at the G20 summit is successful, it would boost higher risk currencies.
However, the US dollar would still derive some support as the Federal Reserve may be less inclined to cut interest rates in the event of a deal.
Commenting on this was Chief Forex Strategist at Mizuho Securities, Masafumi Yamamoto.
He said: “If the two sides agree not to impose more tariffs, the Fed would no longer need to cut rates.
“On the contrary, if the talks point to the imposition of more tariffs, that could nudge hesitant policymakers towards rate cuts.”
On Thursday morning reports revealed that the US and China have agreed to a tentative truce ahead of the Trump-Xi meeting.
According to three sources, the details of the agreement will be revealed in a press releases before the meeting on Saturday.
The agreement would avert the next round of $300 billion tariffs on Chinese imports previously threatened by President Trump.
The pound, meanwhile, is struggling to exert itself in the face of rising no-deal Brexit concerns.
Front-runner in the Conservative leadership contest Boris Johnson reaffirmed his promise that he would take the UK out of the EU by 31 October.
Speaking to the BBC, Johnson stated he was “serious” about taking the UK out without a deal if the European Union refused to negotiate a new Withdrawal Agreement.
Commenting on this, European Head of Global Markets Research at MUFG Bank Derek Halpenny said: “We are heading for a showdown – a no-deal Brexit; a general election; or a second referendum.
“The pound is set to come under renewed downward pressure over the coming weeks with no deal very much under-priced.”
Looking ahead to this afternoon, the US dollar could rise following the release of the US Q1 GDP.
If the data reveals that the US economy has expanded at a faster rate than originally estimated, the “Greenback” could rise.
The exchange rate could then extend losses on Friday if the UK GfK consumer confidence survey shows a dip in sentiment.