GBP/USD has inched lower in the Wednesday session. In the North American session, the pair is trading at 1.2950. On the release front, there are no British events on the schedule. In the US, Existing Home Sales dropped sharply to 5.57 million, short of the forecast of 5.65 million. Later on, the Federal Reserve will release the minutes of its May policy meeting. On Thursday, the UK releases Second Estimate GDP, while the US will publish unemployment claims.
The British pound is having an uneventful week, but the situation in the UK is anything but quiet. The country is badly shaken after a horrific bombing at a Manchester rock concert killed 22 and injured 120 people. It was the worst terrorist attack on British soil since a bombing in London in 2005. The British government raised the terror threat level to "critical", the highest level. This move has raised speculation that another terror attack could be imminent on British soil. The attack has led to the suspension of the election campaign, with just 15 days to go before the vote. Prime Minister Theresa May is expected to win the election, but further attacks could rattle confidence in the government and shrink May’s lead in the polls.
All eyes are on the Fed minutes, with the markets hoping to glean some clues about the timing of future rate moves. The Federal Reserve raised rates back in March, and the markets expect the Fed to press the rate trigger at the June policy meeting. The odds of a rate hike have increased to 83%, according to the CME Group. Just last week, the likelihood of a rate increase stood at 73%. Despite the market speculation, Fed policymakers are keeping their cards close to their chest, at least in their public appearances. On Tuesday, Philadelphia Fed President Patrick Harker said that a June move was a "distinct possibility", but cautioned that a weak inflation report could delay a rate hike. Earlier in the week, Robert Kaplan, President of the Dallas Fed, stated that three interest increases in 2017 was "appropriate". The Fed minutes are expected to underscore support for a June move, but may not shed much light on what happens after that. Still any clues about the Fed’s rate plans could shake up the currency markets.
With President Trump still overseas on his first presidential trip, the White House presented Trump’s 2018 budget proposal to Congress on Tuesday. Trump has promised to slash government spending, and the budget proposes major cuts to the Medicaid health program, disability benefits and food stamps. Trump has outlined an ambitious program to cut government spending by $3.6 trillion in the next 10 years and achieving a balanced budget by 2020. The budget also includes $25 billion for paid leave after childbirth and some $200 billion for infrastructure programs. It’s a safe bet that Trump’s budget will face tough opposition on Capitol Hill, with both Democrats and Republicans unlikely to go along with such deep cuts to social assistance programs. Still, with the Trump administration beset by Congressional investigations, the White House can point to the budget as a step forward in his agenda to cut government spending.
