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Pound to US Dollar Exchange Rate Outlook Rises on Federal Reserve’s Cloudy Outlook

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Pound to US Dollar Exchange Rate Solid on Election and Brexit Hopes

Expectations for a month of UK election uncertainty has not done much to weaken the Pound Sterling to US Dollar (GBP/USD) exchange rate this week, which has been rising on a combination of UK political hopes and US Dollar (USD) weakness.

Since opening this week at the level of 1.2826, GBP/USD has been climbing steadily and last night saw a more solid jump in demand following the latest Federal Reserve policy decision.

GBP/USD is currently trending near the level of 1.2501, putting it just half a cent below last week’s 5-month-best of 1.3008.

Investors sold the US Dollar last night, after Fed Chairman Jerome Powell stopped short of saying the bank’s rate cut cycle was over.

Pound (GBP) Exchange Rates Gaining on Hopes for Softer Brexit Deal

While the Pound outlook is uncertain until the outcome of December’s UK general election, the latest election speculation has been largely Pound-positive.

Many possible outcomes to December’s election remain, but markets generally believe that the ruling Conservative Party will win the election and push through UK Prime Minister Boris Johnson’s Brexit deal.

According to Jane Foley, Head of Currency Strategy at Rabobank:

‘Our central view is we probably assume that Johnson does manage to cobble together a government and he gets the deal through’

As a result, the Pound has been able to sustain most of its recent gains even ahead of a month of election campaigning and uncertainty.

US Dollar (USD) Exchange Rates Tumble on Federal Reserve Uncertainty

As was widely expected, the Federal Reserve cut US interest rates in its October policy decision last night, the bank’s third rate cut since July.

However, the tone the bank took was surprising to markets. While it indicated that the bank could pause its interest rate cut cycle for now, it was too vague to be considered an explicit signal.

Forecasts for a Federal Reserve interest rate cut lightened following the decision.

However, the tone overall indicated to investors that the Fed outlook on interest rates was cloudy overall, putting pressure on the US Dollar.

According to Tim Foster, Portfolio Manager at Fidelity International:

‘The new, slightly shorter, statement tries to keep their options open and puts them back into a data-dependent mode, but circumstances could mean that they have less optionality than they think,’

Pound to US Dollar (GBP/USD) Exchange Rate Outlook Could be driven by US Data

US Dollar investors are still anxious about the possibility of a Dovish Federal Reserve in the coming months in response to the US economic outlook. As a result, markets will be closely watching US data.

Some major US ecostats will be published through the end of the week which could give investors a better idea of how the American economy is performing.

US Personal Consumption Expenditure (PCE) inflation data from September will be published this afternoon. As the Fed’s preferred measure of US inflation, it could cause Fed rate cut expectations to rise again if it disappoints.

The same can be said for October’s US Non-Farm Payrolls report, due tomorrow. This US job market report is closely watched by the Federal Reserve.

Fed interest rate cut bets will drive the US Dollar outlook, and the Pound to US Dollar (GBP/USD) exchange rate outlook will also be influenced by developments in UK politics and Brexit.