The Pound to US Dollar exchange rate rallied by around two cents last week to strike its highest level in a month thanks to a High Court judgement on ‘Brexit’.
Carney Bounce Boosts Pound
‘Cable’ ticked higher last Monday in response to Bank of England Governor Mark Carney’s pledge to stay on at Threadneedle Street until 2019. Following calls for Carney’s head from some prominent ‘Brexiteers’, the 12-month extension quelled fears that the Old Lady’s independence was becoming compromised. If the Governor had been dismissed out of hand then the likelihood is that markets would interpret the decision to be politically motivated, which could have seriously exacerbated negative sentiment towards Sterling.
GBP/USD remained flat on Tuesday as the Carney bounce wore off and demand for the ‘Greenback’ was hurt by fears of a Donald Trump election victory. Trump’s polling figures improved after the FBI launched another probe into Democratic candidate Hillary Clinton’s use of private email servers.
US election jitters continued driving market sentiment on Wednesday and GPB/USD rallied to a three-week high as traders hedged their bets. If Trump were to win then his unconventional policies would likely lead to a selloff in the US Dollar.
High Court Ruling Sends Sterling Higher
Sterling strengthened by around a cent versus the ‘Greenback’ on Thursday when the UK High Court ruled that British parliamentary approval would be required before Prime Minister Theresa May invokes Article 50 of the Lisbon Treaty and formally starts the UK’s two-year divorce process with the European Union. Although the decision will probably not reverse the referendum result, it may delay the invocation of Article 50 and force May to pursue a softer stance on ‘Brexit’. The Pound’s appeal increased as investors bet on a higher chance of Britain retaining access to the single market.
The BoE left monetary policy on hold on Thursday and noted that stimulus could be boosted or reduced in future months. Although the hawkish message led to a reduction in near-term BoE easing expectations it was largely overshadowed by the High Court ruling.
Clinton Cleared Of Criminal Wrongdoing By FBI
On Friday the US unemployment rate fell from 5.0% to 4.9% and the non-farm payrolls print showed a sturdy rise of 161,000 in October. Nevertheless, GBP/USD rose to a monthly high north of 1.25 as Trump jitters drove sentiment.
However, the FBI has since cleared Clinton of any criminal wrongdoing regarding her use of private servers and demand for the US Dollar has been enhanced as a result.
US Election In Focus
The FBI announcement has boosted Clinton’s hopes of reaching the White House but there are more large moves in store for GBP/USD this week when the actual election results come in.
If the status quo Democratic candidate Hillary Clinton does in fact win the vote then ‘Cable’ could come crashing down as investors breathe a sigh of relief. Market futures now predict a 78% chance of a 25 basis point rate hike from the Federal Reserve next month.
If Republican candidate Donald Trump claims victory, his unconventional policies could weigh on economic sentiment and prompt the Fed to delay its expected tightening of policy, therefore causing GBP/USD to trade higher.