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Sterling jumps versus the greenback! The pound to US dollar interbank exchange rate has hit 1.3326 today, its highest in 3 weeks, or since June 14th.
The pound has strengthened, because UK prime minister Theresa May has convinced her Cabinet to pursue a "soft" Brexit, at a meeting at Mrs. May's country residence Chequers.
Sterling has jumped, because Mrs. May's Cabinet has agreed to pursue a "free trade area for goods" with "ongoing harmonisation with EU rules on goods" in the new Brexit plan.
This has lifted the pound, first because Mrs. May's Cabinet agreement puts an end to weeks of disagreement, thus lifting the odds that the UK will achieve a favourable Brexit deal.
This has also boosted sterling, because Mrs. May's plan to stay in the EU's Single Market for goods will make it easier for UK businesses to export to Europe, thus lifting UK GDP too.
Following the prime minister's decision with her cabinet, Brexit secretary David Davis has resigned, yet financial markets remain upbeat about the UK's outlook for a fab Brexit deal!
US Dollar Falls, as US Wage Growth Remains Weak
What's more, the pound to US dollar interbank exchange rate has also strengthened, because US wage growth remains weak, according to official data last Friday.
The US dollar has lost out, because wages in America rose by just +2.7% in June year-on-year, said the US Department of Labor last week, below financial market forecasts for +2.8%.
This has weakened the greenback, first because this tells us that, even though the USA created a healthy +213,000 jobs last month, wage pressures in America remain low.
This has dragged down the buck, because when US wage growth stays low, US inflation remains weak too, thus cutting the odds that the Federal Reserve will lift interest rates faster.
"US wages did not increase so substantially, so there won’t be a rapid pickup in the pace of long-term interest rate hikes," says Daiwa Securities' Yukio Ishizuki, thus weighing on the US dollar.
As a result, the pound has reached this 3-week high versus the US dollar, and could continue to climb in July 2018!
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email firstname.lastname@example.org.