Pound to US Dollar Exchange Rate Climbing Again as Market Panic Cools Slightly
US 2020 Presidential Election results trickling in over the past day have given Joe Biden the edge, which is helping the Pound Sterling to US Dollar (GBP/USD) exchange rate rise. The pair’s gains may be limited though, as safe havens remain appealing.
Since opening this week at the interbank level of 1.29, GBP/USD has been trending with an upside bias. GBP/USD touched on a fortnight high of 1.31 before the US election results begun to come in, but a jump in safe haven demand pushed the pair lower again.
This morning though, GBP/USD is once again trending higher. GBP/USD trends near the interbank level of 1.30 at the time of writing, putting it closer to last week’s opening levels.
The US Dollar’s safe haven demand has been the most influential factor this week. As a result, the Pound to US Dollar exchange rate’s strength may shift notably as the US Presidential Election result becomes clearer.
Pound (GBP) Exchange Rates Up as Market Sentiment Cools Slightly
When the results of the US 2020 Presidential Election started to come in yesterday, it became clear that the outcome would not be as clear as markets expected.
A tighter race made investors hesitant to take risks. The Pound (GBP), currently seen as risky, tumbled against the safe haven US Dollar (USD) as a result.
Still, votes continue to be counted. As Joe Biden wins more States, hopes of a clear eventual win are rising. This is making markets a little calmer today, and the Pound is advancing as a result.
The Pound’s potential for gains is highly limited overall though. Today’s Bank of England (BoE) news didn’t help Sterling either.
The BoE announced it would ramp up quantitative easing (QE). On top of this, the bank updated itws UK forecasts, expecting huge contractions in the economy and a worse unemployment rate.
Another striking characteristic of today’s @bankofengland projections is that UK GDP, or national income, is set to shrink by 11% for the whole of 2020, a record. We are losing more than one in every ten pounds of our income, one of the worst performances in the world: the…
— Robert Peston (@Peston) November 5, 2020
US Dollar (USD) Exchange Rates Soften on Rising Election Hopes
The US Dollar (USD) is a safe haven currency. It often benefits in times of global market uncertainty. As a result, it has benefitted strongly from a tighter than hoped US 2020 Presidential Election.
However, as hopes for a Biden win rise, the US Dollar has been knocked down from highs again. The currency has been highly volatile over the past week.
According to John Velis, FX and Macro Strategist at BNY Mellon:
‘The Dollar will probably be caught between a haven bid on the uncertainty of the disputed election and a lack of interest in shorting the currency on the prospects of a potential Biden win,’
US data has been underwhelming in recent sessions as well, which has limited the US Dollar’s appeal.
Pound to US Dollar (GBP/USD) Exchange Rate Direction Depends on US Election Outcome
As it has been for most of the week, the Pound to US Dollar exchange rate’s movement will be dominated by the US 2020 Presidential Election.
A clear result of the election will soften broad market uncertainty and help the Pound (GBP) to recover, as investors would sell safe havens like the US Dollar (USD).
On the other hand, if US President Donald Trump tightens the gap or there are more signs that the results will be contested, safe haven demand will rise again.
The Federal Reserve’s November policy decision will be held this evening. The bank is likely to remain cautious over the coronavirus pandemic and US political uncertainty.
While this could be influential though, the focus for the Pound to US Dollar (GBP/USD) exchange rate over the coming sessions will remain the US 2020 Presidential Election.