GBP/USD Exchange Rate Slides as UK Prepares to Enter Second Lockdown

In the wake of Boris Johnson announcing a four-week lockdown the GBP/USD exchange rate remained on the back foot, driven down by the prospect of fresh economic disruption.

Last Week: Solid Third Quarter GDP Reading Boosts US Dollar Appeal

As the UK economy had already shown signs of losing its previous recovery momentum, with the retail sector slumping in October, investors found little cause for confidence.

Even so, with UK-EU trade talks ongoing and the possibility of a deal remaining on the table this limited the potential for Pound losses.

A better-than-expected surge in the annualised third quarter US gross domestic product offered a boost to the US Dollar, meanwhile.

Although the US economy remains below its pre-Covid-19 levels of growth markets still found encouragement on the sharp 33.1% surge in quarterly activity.

Three Things to Watch out for This Week

1. US presidential election result

The US Dollar looks set to experience heightened volatility once voting in the US presidential election concludes, with markets wary of a political upset.

Until the ultimate result of the election becomes clear USD exchange rates are likely to prove volatile, especially if the outcome is contested or otherwise challenged.

2. Bank of England policy meeting

Support for the Pound could weaken on Thursday, meanwhile, in response to any dovishness on display in the Bank of England’s (BoE) meeting minutes.

If policymakers acknowledge the possibility of negative interest rates, however small, the GBP/USD exchange rate could experience a fresh slump.

3. Federal Open Market Committee policy meeting

Although no policy action is anticipated from the Federal Reserve at its November policy announcement the potential for US Dollar jitters remains.

Fresh signs of caution from Fed policymakers could see the appeal of the US Dollar weaken, especially if they appear to pave the way for future loosening measures.

GBP/USD Outlook

Uncertainty over the US election and the prospect of fresh central bank dovishness could see the GBP/USD exchange rate struggling to hold onto a positive footing in the days ahead.

Louisa Heath

Contact Louisa Heath