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Pound Sterling to US Dollar (GBP/USD) Exchange Rate Outlook Hangs on Federal Reserve Interest Rate Decision

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Pound to US Dollar Exchange Rate Trends near Weekly Highs on Brexit Support

Confirmation that Britain would be able to avoid a no-deal Brexit, as well as hopes for an upcoming UK general election to resolve the Brexit deadlock, boosted the Pound Sterling to US Dollar (GBP/USD) exchange rate yesterday.

After tumbling from 1.2922 to 1.2826 last week, the pairing has seen a modest upside bias since markets opened on Monday.

At the time of writing, GBP/USD was trending close to 1.2875, just over a cent below last week’s 5-month-best of 1.3008.

The Pound (GBP) is benefitting from domestic political news, while investors are hesitant to buy the US Dollar (USD) ahead of today’s predicted Federal Reserve interest rate cut.

Pound (GBP) Exchange Rates Supported by Brexit Hopes but Gains Limited

The Pound has been trending with an upside bias against the weaker US Dollar (USD) this week, as the latest developments in UK political news doused concerns that Britain could be heading for a worst-case scenario no-deal Brexit.

The EU confirmed that the Brexit deadline had been extended until the 31st of January, and yesterday saw UK Parliament confirm a General Election for the 12th of December.

An election is expected to help shift the current domestic deadlocks over the Brexit process, and the ruling Conservative Party is currently projected to pick up the most seats.

However, the Pound’s gains were limited, as an election could also lead to many potential outcomes that would deepen uncertainty. According to Ray Attrill, Head of FX Strategy at National Australia Bank:

‘Sterling has struggled to hold onto modest knee-jerk gains because the outcome of an election is highly uncertain’

US Dollar (USD) Exchange Rates Pressured by Rate Cut Expectations

Investors were hesitant to move too much on the US Dollar today, with markets awaiting this evening’s October policy decision from the Federal Reserve.

The Fed is expected to cut US interest rates for the third time this year following the ongoing US-China trade war impact on a weakening US economy.

While the Fed is already expected to make a US interest rates cut, investors are anxious that the central bank could become even more dovish.

According to analyst Lindsey Piegza, Chief Economist at Stifel, Fed policy could become even more eased in reaction to the US economic crisis:

‘A continued loss of momentum not only justifies earlier action taken by the Fed, but further perpetuates the need for additional policy stimulus to stave off a continued downward trend in domestic activity,’

Pound to US Dollar (GBP/USD) Exchange Rate Outlook to be driven by Fed News

The Pound to US Dollar (GBP/USD) exchange rate is trending higher this week, but if we see the US Dollar softening the pair may have even further to climb.

The Federal Reserve’s October policy decision this evening will be one of this week’s biggest events for GBP/USD traders. If we do see a more dovish Fed, then the ‘Greenback’ could be in for fresh losses.

Upcoming US data, including growth rate stats this afternoon and Personal Consumption Expenditure (PCE) inflation data tomorrow, is also likely to influence USD movement.

Continued signs of a US economy recession could lead to rising bets for another Fed interest rate cut, which would further dampen the US Dollar.

Meanwhile, as Britain prepares to head to the UK election polls in December, the popularity of the main political parties and their candidates, likely to be further clarified over the next six weeks, could also influence the Pound to US Dollar (GBP/USD) exchange rate outlook.