The Pound US Dollar exchange rate surged on Thursday thanks to key news related to Brexit and the Bank of England (BoE). However, next week’s US election could see GBP USD either continue this trend or give it all up for weeks or even months to come. GBP USD has gained over 3 cents in value over the last week and on Friday was hovering below 1.25.
Pound US Dollar (GBP USD) Reaches New Support Levels on High Court Ruling
Thursday saw the Pound make its best one-day movement against the US Dollar since July thanks to a double injection of news that cheered UK investors. The biggest GBP USD boost of the day came as a result of a ruling made by three judges in the UK’s High Court.
A challenge had been made to the UK government’s decision to activate Article 50 without any kind of say from Parliament. Ultimately, judges ruled that it was unconstitutional for Article 50 to be activated, stating that MPs must vote on the matter.
The Bank of England’s (BoE) November policy meeting also gave Sterling a significant leg up. Policymakers agreed unanimously to leave monetary measures frozen and the bank’s 2016 and 2017 GDP forecasts were revised upwards, confirming a confidence in the UK’s current economic situation despite the Brexit vote.
US Dollar (USD) Undermined as 2016 Election Race Tightens
The US Dollar has seen its worst trade week for quite some time this week, as polls and bets on the outcome of next week’s US Presidential election continue to tighten.
National polls have shown a diminishing lead for Democrat Hillary Clinton; the ‘status quo’ candidate who markets believe will remain consistent with current US economic policies. Clinton’s lead in key swing states has also come into question.
This uncertainty hasn’t just affected US markets, but global markets as investors scurry to readjust their positions, looking for safer investments.
Thursday’s US ecostats may have weakened the ‘Greenback’ further, as ISM’s services PMI came in well below expectations at only 54.8.
Pound US Dollar Long-Term Forecast: How 2016 US Election May Affect Pound Recovery Chances
It’s no secret that Sterling’s value has fallen very far since the Brexit vote in June, but after making its biggest one-day-rally since July, what would it take for Sterling to see a more prolonged recovery?
Extended weakness in the US Dollar may be its best chance, as British data has provoked mixed responses from the Pound in recent months as investors increasingly focus on Brexit news to drive Sterling.
This means next week’s US Presidential election is unsurprisingly pivotal. Markets will be thrown into an uncertain panic if the unorthodox Republican, Donald Trump, wins the White House.
This could cause long-term difficulty for the US Dollar in markets and could even affect economic activity if the market shock is large enough. By extension, it could cause the Federal Reserve to delay its plans for interest rate hikes, which would surely lead to further falls in USD GBP exchange rates.
The above scenario would likely see the Pound US Dollar make a significant recovery in the coming weeks and months as the ‘Greenback’ slumps.
On the other hand, a win from the more status quo candidate – Clinton – could see the US Dollar experience a relief rally. Following this, markets will return to normal and bets of a December Fed rate will remain high. This will make a sustained, long-term Sterling recovery unlikely.
At the time of writing, the Pound US Dollar exchange rate trended in the region of 1.24 while the US Dollar Pound exchange rate traded at around 0.80.
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