GBP/USD: Nearing 1.30 in Third Day of Gains

The British pound is up against the US dollar on Wednesday afternoon, targeting a third day of gains. Expectations that higher government spending in the UK might offset some of the trade uncertainties is coming to the aid of Sterling while dovish testimony from Fed Chair Jerome Powell is causing the dollar to soften.

GBP/USD was higher by 33 pips (+0.26%) at 1.2984 with a daily price range of 1.2950 to 1.2990 as of 2pm GMT. The 1.30 level has been pulling the currency pair higher this week where gains now total +0.71%.

GBP high thanks to prospect of increased government spending

While Brexit and trade-related uncertainties persist in the UK, the pound is being supported by the prospect of increased government spending. A first hint at the kind of infrastructure spending to expect under Prime Minister Boris Johnson came when his government approved HS2, the high-speed rail line connecting London to Birmingham. The approval of HS2 would suggest other big-ticket projects could also be in the loop.

As a reminder, the formula for GDP = C + I + G + (X-M). The ‘G’ represents government spending, so in theory the higher the ‘G’ the higher the GDP. The government will announce its next budget on March 11, and Chancellor of the Exchequer Sajid Javid has said there will be an “infrastructure revolution.” Business investment has been lagging since the EU referendum so rising government spending, including lucrative government contracts could encourage businesses to start investing again.

USD down ahead of Powell’s testimony

Federal Reserve Chair Jerome Powell is expected to make similar commentary to the US Senate today as he did to the Congress on Tuesday. Powell said the Fed is confident in the US economy and sees the removal of trade uncertainty as a positive. However, he also warned on the potential negative effects of the coronavirus, which investors took to mean the Fed might be prepared to lower interest rates to protect the US economy. Questions from Senator Elizabeth Warren, who has held some important finance-related positions in government and is now a Democratic Presidential candidate could be a highlight.

---

Currencylive.com is a news site only and not a currency trading platform.

Currencylive.com is a site operated by TransferWise Inc. (“We”, “Us”), a Delaware Corporation. We do not guarantee that the website will operate in an uninterrupted or error-free manner or is free of viruses or other harmful components. The content on our site is provided for general information only and is not intended as an exhaustive treatment of its subject. We expressly disclaim any contractual or fiduciary relationship with you on the basis of the content of our site, any you may not rely thereon for any purpose. You should consult with qualified professionals or specialists before taking, or refraining from, any action on the basis of the content on our site. Although we make reasonable efforts to update the information on our site, we make no representations, warranties or guarantees, whether express or implied, that the content on our site is accurate, complete or up to date, and DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Some of the content posted on this site has been commissioned by Us, but is the work of independent contractors. These contractors are not employees, workers, agents or partners of TransferWise and they do not hold themselves out as one. The information and content posted by these independent contractors have not been verified or approved by Us. The views expressed by these independent contractors on currencylive.com do not represent our views.