After The Reshuffle, GBP/USD Now Faces The Hard Data

Keep calm and carry on – the famous saying is relevant to pound/dollar’s trading. The currency pair hit the lowest since November only to recover amid calm from all sides about the coronavirus outbreak and a favorable change in the UK government. The focus now shifts to fresh economic figures.

This week in GBP/USD: The Javid jump stood out

“Bloodbath,” “Thrown under the bus,” Knifing” – read some of the headlines following the cabinet reshuffle. Prime Minister Boris Johnson forced Sajid Javid out of his position as Chancellor of the Exchequer, replacing him with the less known Rishi Sunak. The change at 11 Downing Street – which shocked observers – aligns the Treasury with the PM and opens the door to infrastructure spending.

Dominic Cummings, the PM’s powerful aide, saw Javid and his advisers as roadblocks to implementing investment plans. The deficit limits that had been in place toward the March 11 budget are now out. In regular times, fiscal imprudence would have been punished by markets – but these are abnormal times. Investors see the budgetary spending is boosting the economy – and pound traders speculate that the Bank of England is now relieved of further stimulating the economy with rate cuts.

GBP/USD jumped in response to the political developments that turned into the defining moment of the week for sterling.

The coronavirus outbreak has been topping the list as the death toll in China continued rising, and the disease spread around the world, including to Brighton. However, the economic impact seems contained as most Chinese factories returned to work, and the pace of new infections has decelerated.

Stock markets advanced, and the better market mood helped sterling advance. Mark Carney, the outgoing Governor of the Bank of England, compared the current scare to previous ones and noted that bounces followed disease-related economic downturns.

On the other side of the pond, Jerome Powell, Chairman of the Federal Reserve, said that he is closely monitoring developments, but there is no reason to doubt the expansion will last. The words of both central bankers, and those from Chinese policymakers, helped soothe markets.

While a vaccine to the coronavirus may take many months, the pound seems to be immune to Brexit headlines. Both the UK and the EU continued digging into their positions. Sajid Javid, the UK Chancellor of the Exchequer, said that Britain aims to maintain equivalence with the EU – essential for the financial services sector – while making its own rules.

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