UK Political News to Dominate Pound (GBP) Foreign Exchange Rates
UK politics will continue to act as a key catalyst of movement in the Pound (GBP) this week, as the UK election race begins to heat up.
Election campaigning officially gets underway this week with the dissolution of parliament on Wednesday.
GBP exchange rates jumped last week after early data suggested a Tory lead in polls over Labour to the tune of 15 points, with market predictions that a Conservative majority would help break the Brexit deadlock in parliament.
However markets will recall that Theresa May enjoyed a similar lead when she called a snap election in 2017, with a perceived 20 point lead becoming the reality of 15 lost seats.
With this in mind it seems safe to assume polling data could shift dramatically over the coming weeks especially as Parties launch their election manifestos.
Moreover it looks like healthcare could be equally as important as Brexit in the upcoming election, to the benefit of Labour.
This could see Sterling sentiment sour in the coming weeks if a strong showing by Labour prompts fears for a hung parliament.
BoE Rate Decision and Services PMI Also in Focus for GBP Investors
Outside of politics, there will also be some key UK data releases which may also impact GBP exchange rates this week. The first of which will be the UK services PMI.
The UK’s vital service sector suffered its first contraction in six months in September with economist forecasts suggesting another slump in October.
If correct this could put some pressure on the Pound on Tuesday as it suggest the UK economy got off to a poor start in the third quarter.
This will be followed by the Bank of England’s (BoE) latest rate decision on Thursday.
While the BoE is not expected to announce any policy changes this month, GBP investors will be keeping a close eye on the central bank’s forward guidance.
However the BoE’s outlook is likely to be complicated by yet another delay to Brexit, forcing the bank to take it’s best guess at the UK’s near-term economic future.
HSBC economist Liz Martins comments:
‘It’s a nightmare for them, really. Against that backdrop they will err on the side of caution, sound dovish, and do nothing.’
A more cautious tone from the Bank would likely see Sterling sentiment sour in the latter half of the week.