Pound Sterling to US Dollar (GBP/USD) Exchange Rate Continues to Benefit From US Election Anxiety

US Election Jitters Keep US Dollar (USD) on Back Foot

UPDATE: As the first US polls opened this put the US Dollar (USD) under fresh pressure, with investors jittery over the likely outcome of the midterm elections.

This helped to keep the Pound Sterling to US Dollar (GBP/USD) exchange rate on a positive footing this morning, even as speculation over Brexit continued to rage.

A disappointing British Retail Consortium (BRC) like-for-like sales figure helped to limit the upside potential of the GBP/USD exchange rate, however.

Strong US Service Sector Fails to Dent GBP/USD Exchange Rate Uptrend

UPDATE: A better-than-expected ISM non-manufacturing composite index was not enough to dent the Pound Sterling to US Dollar (GBP/USD) exchange rate this afternoon.

Although the US service sector continued to demonstrate solid growth in October, with the index clocking in at 60.3, the US Dollar remained on the back foot.

Mounting tensions ahead of the US midterm elections have kept USD exchange rates under pressure today, with markets wary of a potential political shakeup.

Disappointing UK Services PMI Fails to Limit Pound Sterling US Dollar (GBP/USD) Exchange Rate Upside

Pound Sterling (GBP) struggled to sustain its bullishness this morning as October’s UK services PMI fell short of forecast, easing from 53.9 to 52.2 on the month.

Coupled with the similarly discouraging nature of last week’s manufacturing PMI this paints a less-than-positive picture of the economic outlook.

With business confidence easing in response to prolonged Brexit-based uncertainty and new orders falling, the UK economy appears to have started the fourth quarter on a weaker footing.

This did not appear to limit the strength of the Pound Sterling to US Dollar (GBP/USD) exchange rate at the start of the week, even as speculation over a possible customs deal picked up once again, with the pairing still managing to gain 0.4% on the day.

Jitters Forecast for Pound Sterling (GBP) Ahead of Third Quarter UK GDP

Confidence in the Pound could weaken on Friday if the third quarter UK gross domestic product data fails to impress.

Although investors anticipate an uptick from 0.4% to 0.6% in growth on the quarter the weakness of recent data has raised the likelihood of a downside disappointment.

If the UK economy failed to pick up pace in the third quarter this would not bode well for the prospects of the fourth quarter.

However, evidence of resilient domestic growth could give the GBP/USD exchange rate a fresh boost, helping the pairing to recover some of its recent losses.

A stronger showing from September’s raft of UK trade and production data may also offer Pound Sterling some support ahead of the weekend.

USD Exchange Rates Vulnerable to Softening Economic Growth

After Friday’s mixed US data the US Dollar (USD) remains vulnerable to selling pressure, especially if the economy shows further signs of losing momentum.

Forecasts point towards this afternoon’s ISM non-manufacturing composite index easing from 61.6 to 59.1 in October.

Even though the index is expected to remain firmly within expansion territory this slowdown could give investors fresh incentive to sell out of the US Dollar.

With trade tensions between the US and China showing no signs of easing there are fears that further pressure is in store for the US economy in the months ahead.

Political jitters are also likely to weigh on USD exchange rates in the near term, with investors keenly watching the results of the midterm elections tomorrow.

Hawkish Fed Meeting to Support US Dollar (USD) Exchange Rates

Greater support for the US Dollar may well be in store on the back of Thursday’s Federal Open Market Committee (FOMC) policy announcement.

While no change in policy is expected at this stage the meeting is expected to confirm the prospect of a December interest rate hike.

As long as policymakers still look set to deliver a fourth 2018 rate hike the mood towards the US Dollar is likely to pick up.

On the other hand, signs of increased caution within the FOMC could limit the upside potential of USD exchange rates this week.

Any fresh criticism of the Federal Reserve from the Trump administration may also dampen the appeal of the US Dollar in the near term, to the benefit of the GBP/USD exchange rate.

Hannah Wilson

Contact Hannah Wilson