GBP/USD Exchange Rate Slumps Back Below $1.30 as US Election Drama Grips Markets

GBP/USD Exchange Rate Tumbles as US Election Drags on

The Pound to US Dollar (GBP/USD) exchange rate is trading well below yesterday’s best levels this morning as an unclear election result upended market expectations.

At the time of writing the GBP/USD exchange rate is trading at around $1.2940, down roughly 1.1% from this morning’s opening rate.

US Dollar (USD) Soars amid Fears of a Contested Election Result

The US Dollar (USD) is rallying hard against the Pound (GBP) and majority of its other peers this morning, as US election uncertainty gripped markets.

A clear USD selling bias emerged yesterday, fueled by expectations of a clear victory for Joe Biden.

However, the US Dollar has now recouped almost all of its losses as Donald Trump once again outperformed expectations, leaving the election on a knives edge as ballots continue to be counted.

Despite the fact that a final result may not be known for days due to millions of postal votes in key battleground states, Trump has already made claims of victory, whilst also threatening to contest the election in the Supreme Court.

Richard Carter, head of fixed income research at Quilter Cheviot, comments:

‘At this stage, no clear winner in the US Presidential election has been declared. Once again, the polls have underestimated the depth of support for Donald Trump and it is possible he may well end up as the winner.

‘In the short term, this is disappointing for markets and raises the prospect of several days or even weeks of uncertainty and possible legal challenges.’

Unsurprisingly, the prospect for a drawn-out results process and potential for lengthy legal battles has unnerved markets and bolstered the safe-haven appeal of the US Dollar, particularly amidst concerns it could further delay US stimulus measures.

Pound (GBP) Struggles as UK Lockdown Looms

Meanwhile, the Pound (GBP) is struggling to put up much resistance against a resurgent US Dollar (USD) this morning ahead of the UK’s impending lockdown.

MPs will vote later today on England’s month-long lockdown, and despite some objections from Conservatives the new measures are expected to pass and come into effect just after midnight.

The new measures are set to have a dramatic impact on the UK economy, with GBP investors fearing the lockdown will put the UK on track for a double-dip recession this winter.

GBP/USD Forecast: BoE and Fed Rate Decisions

Outside of US election drama, which is sure to continue to act as a key catalyst of movement in the Pound to US Dollar (GBP/USD) exchange rate through the remainder of the week. The focus for investors will be on tomorrow’s central bank policy decisions.

First up will be the Bank of England (BoE), which is expected to announce an expansion to its quantitative easing programme, as well as downgrade its growth forecasts in light of the UK’s new lockdown.

However, the BoE is likely to keep schtum in regards to negative interest rates, potentially helping to limit any downside potential in Sterling.

Later in the session will be the Federal Reserve’s own rate decision. While no policy changes are expected from the Fed this month, a cautious outlook from the bank and warnings over growth in the fourth quarter could see skittish investors extend their positions in the currency.

Matthew Andrews

Contact Matthew Andrews