GBP/USD Exchange Rate Stable as UK Election in the Spotlight
Having spiked overnight, the Pound Sterling to US Dollar (GBP/USD) exchange rate finds itself in a holding position this morning as the UK heads to the polls for what is being billed as the most important election in decades.
At the time of writing the GBP/USD exchange rate is trading at around $1.3204, virtually unchanged from this morning’s opening rate.
Pound (GBP) Rangebound on Election Day
The Pound (GBP) is trading without any strong directional bias this morning, with GBP investors reluctant to make any bullish bets as the UK electorate begins to cast their votes in a historic general election.
Voters set to head to polls across the UK for 2019 general electionhttps://t.co/0ZcvD6kPtD
— BBC Politics (@BBCPolitics) December 12, 2019
Sterling is still holding close to multi-month highs however, as despite a slight narrowing in opinion polls, the Conservatives are still widely expected to come out on top.
GBP investors generally favour a Tory majority on hopes it will allow Boris Johnson to pass his EU withdrawal deal, providing more clarity on Brexit, at least in the short term.
The Pound is likely to remain mostly muted through today’s session until the exit poll is released at 22:00 GMT.
US Dollar (USD) Under Pressure as Fed Rules out Rate Hikes in 2020
US Dollar (USD) finds itself on the back foot this morning as investors continue to steer clear of the currency in the wake of Wednesday’s dovish rate decision by the Federal Reserve.
As had been widely expected, the Fed voted to leave interest rates on hold this month, having cut rates following its three previous policy meetings.
The focus therefore was on Fed Chairman Jerome Powell and his accompanying statement as USD investors sought more clarity on the bank’s policy plans for 2020.
Powell used his statement to reiterate his stance that there would need to be a significant pick-up in inflation before the Fed would consider looking at raising interest rates again.
Analysts interpreted this as a signal that rates will likely remain on hold for the foreseeable future.
Ward McCarthy, chief financial economist at Jefferies, explains:
‘They want to be viewed as being in neutral. And in fact, he made it clear he thinks they’re probably not really in neutral. They’re still accommodative.
‘The take away from that is the probability they’re going to make any changes in policy for at least six months is very low, and it would take something quite significant for that to happen.’
GBP/USD Exchange Rate Forecast: All Eyes on UK Election Outcome
Looking ahead, movement in the Pound to US Dollar (GBP/USD) exchange rate through the end of the week will undoubtedly be dominated by the outcome of the UK election.
While GBP investors are hoping for a Tory majority, any upside in Sterling may prove limited given how high it has climbed over the past couple of weeks.
Adam Solomon, Head Of Trading at TorFX explains:
‘If the Tories do win a majority on Thursday, it won’t be a surprise to anyone. To that end, it would be reasonable to expect a fairly muted reaction in the market. A Tory majority win is already priced into the current market rates.’
Conversely in the event of a hung parliament we can expect to see the Pound come under significant pressure as it points to prolonged political uncertainty in the UK.
Meanwhile, the US Dollar may close out the session on stronger footing, with the publication of the latest US retail sales figures potentially boosting USD exchange rates if sales growth accelerates in line with expectations.