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Pound to US Dollar Exchange Rate Tests 8-Month-Best on UK Election Outlook

Pound to US Dollar Exchange Rate Holds Highs as Uncertainties Weigh on US Dollar

Despite market uncertainties about the upcoming UK General Election, the Pound Sterling to US Dollar (GBP/USD) exchange rate continued to trend near its best levels this morning. Trade and central bank uncertainties currently weighed even more heavily on the US Dollar (USD).

Following last week’s impressive, solid GBP/USD advance of over two cents from 1.2927 to 1.3136, GBP/USD has continued to edge higher since markets opened this morning.

GBP/USD briefly touched on a high of 1.3176 earlier in the morning. This was the pair’s best level since March – over eight months ago.

Investors are confident on the UK election outlook and how it could help progress the Brexit process, but analysts still warn of uncertainties. Still, the short-term uncertainty in the US Dollar ahead of an upcoming US-China tariff deadline is keeping the US Dollar unappealing.

Pound (GBP) Exchange Rates Benefitting from Strong Conservative Polling on Election Week

The Pound has seen strong performance in recent weeks. Markets are optimistic about Britain’s political outlook, with mere days until the nation’s 2019 General Election.

Last week, investors piled into the Pound on bets that Britain’s ruling Conservative Party would secure a majority in the upcoming election. Hopes for a Conservative win have kept the currency strong since markets opened today.

Over the weekend, a fresh poll from BMG showed the ruling Conservatives extending their lead again, which left the Pound stronger in reaction.

Bets of a Conservative win are boosting bets that the Tories will be able to push through their relatively soft Brexit plans.

However, there is still uncertainty in the outlook, which is keeping the Pound volatile. According to Lee Hardman, Currency Analyst at MUFG, there are still doubts that the next steps of Brexit can be negotiated quickly enough:

‘it leaves open the risk of a no-deal Brexit towards the end of next year

Once the initial euphoria fades over a positive UK election outcome, it will become more challenging for the Pound to extend its advance in 2020,’

US Dollar (USD) Exchange Rates Pressured by Trade Jitters despite Strong US Jobs

Friday saw the publication of a bumper US Non-Farm Payroll report from November, which showed that the US job market was much stronger than expected.

A strong number of new jobs created, as well as an unexpected fall in the key unemployment rate, both left markets more hopeful about the resilient strength of the US economy.

However, the US Dollar’s strength has been limited despite this data. Concerns that US-China trade negotiations may not produce any major progress until next year, as well as fears of trade war escalations, are keeping investors hesitant to keep buying the US Dollar.

On top of trade concerns, there is still concern about the US economic outlook despite Friday’s strong NFP report. This is because last week’s US manufacturing report came in with a shocking contraction that caused US recession fears to return.

Pound to US Dollar (GBP/USD) Exchange Rate Outlook Depends on Election and Fed

The Pound to US Dollar (GBP/USD) exchange rate has been able to hold its ground so far this week, but analysts are still warning of uncertainty in Britain’s political outlook.

As a result, Sterling movement is expected to remain volatile, and the reaction to Britain’s 2019 General Election on Thursday could cause significant movement.

While markets expect a smooth Conservative majority, an unexpected result like a hung Parliament could cause a shock that sends the Pound plunging.

Election speculation is likely to drive Sterling throughout this week, but the US Dollar outlook has the potential to be driven by various factors.

Key US data is due for publication, including inflation on Wednesday and retail sales on Friday. Wednesday’s session will also see the Federal Reserve’s December policy decision.

Any surprising tone from the Fed, or developments in US-China trade relations, could also cause some notable Pound to US Dollar (GBP/USD) exchange rate movement ahead of Thursday’s UK election.