GBP/USD Exchange Rate Ticks Lower on UK Political Uncertainty
The Pound Sterling to US Dollar (GBP/USD) exchange rate has been placed on the back foot this morning as polling data shows the Conservatives have lost some ground to Labour.
At the time of writing the GBP/USD exchange rate is trading at around $1.2864, down almost 0.3% from the day’s opening levels.
Pound (GBP) Softened by Narrowing Polls
The Pound (GBP) is drifting lower against the US Dollar (USD) and the majority of its other peers this morning as markets react to the latest polling data from the UK.
One such poll have shown the gap between Labour and the Conservatives has closed to just 7 points following the launch of the Tory manifesto over the weekend.
Westminster voting intention:
CON: 41% (-1)
LAB: 34% (+2)
LDEM: 13% (-)
BREX: 4% (-1)
via @ICMResearch, 22 – 25 Nov
Chgs. w/ 18 Nov
— Britain Elects (@britainelects) November 25, 2019
This is a notable drop from the average 13 point lead the polls were pointing to last week, and increases the risk of a hung parliament.
Bill Diviney, senior economist at ABN AMRO explains why markets favour a Tory government:
‘Labour would have much more freedom to implement its radical leftwing agenda, including renationalising parts of the economy that had been privatised (such as the railways), and immediately raising the minimum wage by over 20%.
‘This would likely have a negative impact on financial markets and business confidence.’
US Dollar (USD) Buoyed by Powell’s Optimism
The US Dollar (USD) has found some support this morning, in the wake of comments made by Federal Reserve Chair Jerome Powell overnight.
Speaking in Rhode Island, Powell struck a fairly upbeat tone. Particularly in regards to the US labour market, which he suggested still has ‘plenty of room’ to grow.
While there have been signs that the US economy is slowing in recent months, US employment figures have remained relatively robust. Much to the relief of USD investors.
As such the Fed looks content to leave its monetary policy unchanged for the time being, having cut rates three times in 2019.
‘Monetary policy is now well positioned to support a strong labour market and return inflation decisively to our symmetric 2 percent objective.’
However Powell also sought to reiterate that the Fed’s policy could change in response to changing outlook.
GBP/USD Exchange Rate Forecast: Subdued US Durable Goods Report to Drag on the ‘Greenback’?
Looking ahead, the Pound to US Dollar (GBP/USD) exchange rate may look to rally in the mid-week on the release of the latest US durable goods order figures.
Economists forecast that goods orders will have contracted a further 0.8% in October, a slight improvement on September’s 1.1% slump.
This will likely cast USD exchange rates lower as it indicates that the malaise in the US manufacturing sector has persisted into the fourth quarter.
Meanwhile, in the continued absence of any notable UK data the focus for GBP investors will remain firmly on UK politics, likely limiting movement in Sterling.