- GBP/USD remains positive for the week, up 0.82%.
- UK Prime Minister Boris Johnson won the no-confidence motion and the pound reacted positively.
- The World Bank cuts global economic growth to 4.1%.
- The UK PMI remains in expansionary territory, showing that the economy is slowing down.
The US trade deficit has shrunk to the most in almost 9 ½ years.
Sterling rose for the second day in a row amid two days of volatility courtesy of political issues, most notably Monday’s no-confidence vote on Boris Johnson. At the time of writing this report, the GBP/USD It trades at 1.2593, gaining 0.54%.
Boris Johnson to Remain Prime Minister, GBP/USD Rises
For now, GBP/USD remains higher as Boris Johnson’s win, albeit narrowly, fueled a brief relief rally in the pound. In addition, the fall in US Treasury yields narrowed the spread between US and UK 10-year bond yields. Sentiment turned negative, however, as European stocks closed lower while US stocks showed some weakness, except for the Russell 2000, which rose 0.53%.
Following the open on Wall Street, the World Bank lowered the global growth forecast to 2.9% from 4.1% in January. World Bank President David Malpass said “stagflation risks, the Russo-Ukrainian war and lockdowns in China have been hitting growth and a recession will be difficult for many countries to avoid.” Meanwhile, while global inflation is expected to moderate next year, it is likely to remain above target in many economies.”
It is worth noting that in the Asian session, the Reserve Bank of Australia (RBA) raised rates by 0.50%, adding to the list of “aggressive” central banks.
Meanwhile, the US Dollar Index, a gauge of the dollar’s value against six pairs, posted a minimal loss of 0.01% to trade at 102.401, a tailwind for GBP/USD.
The services index rose to 53.4, higher than expected but below April’s reading of 58.9. The composite rose by 53.1, showing that activity is slowing, which means a stagflation scenario is looming in the UK.
Earlier, UK retail sales contracted 1.5% yoy, down from -1.70% a year earlier. Helen Dickinson, CEO of BRC, said: “Sales continued to decline as the cost of living crisis reduced consumer demand. Higher value items such as furniture and electronics were hit the hardest. as buyers reconsidered major purchases in these difficult times.”
On the US economic docket, the trade balance was released, showing the deficit narrowing to the most in nearly nine-and-a-half years in April, as exports surged to a record $252.6 billion, versus 244.1 billion in March. By the end of the week, initial jobless claims, inflation figures and consumer confidence will give GBP/USD the current state of the US economy.
Technical levels
Source: Fx Street
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