In the wake of Joe Biden’s announced victory in the US presidential election the GBP/USD exchange rate gained renewed traction, benefitting from a general improvement in market sentiment.
Last Week: Turbulent US election fuelled solid US Dollar gains
Demand for the US Dollar rocketed in the wake of US election day, as the anticipated ‘blue wave’ of Democrat votes had initially failed to appear.
As the election proved tighter than markets had expected USD exchange rates found support on the back of an increasing sense of market risk aversion, with investors bracing for a prolonged contest.
With the prospect of fiscal stimulus looking increasingly distant in the face of the political uncertainty, though, underlying concerns over the health of the US economy remained.
On the other hand, as the Bank of England (BoE) failed to make fresh mention of negative interest rates at its November policy meeting, in spite of expanding its quantitative easing programme, the appeal of the Pound strengthened.
Three Things to Watch out for This Week
1. UK unemployment rate
The mood towards the Pound could sour once again on Tuesday, with forecasts pointing towards an uptick in September’s UK unemployment rate.
Fresh evidence of the labour market coming under increasing pressure heading into the final months of the year could weigh heavily on the GBP/USD exchange rate.
2. UK gross domestic product
However, GBP exchange rates may find some support on the back of the third quarter UK gross domestic product report as long as the economy demonstrates solid growth momentum.
Although the economy looks set to experience renewed negative headwinds in the fourth quarter a positive third quarter growth rate could still offer the Pound a temporary rallying point.
3. US consumer price index
While election jitters have settled the US Dollar could face fresh volatility with the release of October’s inflation data.
If the headline inflation rate dips from 1.4% to 1.3% as anticipated this could stoke bets that further Federal Reserve action remains on the horizon.
Signs pointing towards the vulnerability of the UK labour market could see the GBP/USD exchange rate ceding back some of its recent gains, even if the third quarter growth rate picks up.