Pound US Dollar (GBP/USD Exchange Rate Falls as US Investors Turn Bullish
The Pound US Dollar (GBP/USD) exchange rate is weakening this morning as US politics becomes centre focus.
At the time of writing the GBP/USD exchange rate is trading at around $1.1468, which is roughly down 0.9% from this morning’s opening rate.
US Dollar (USD) Gains Ground ahead of Midterm Election Results
The US Dollar (USD) is up against the majority of its peers this morning ahead of the midterm election results.
The Republicans are not doing as well as analysts had expected, triggering a risk-off mood and supporting USD.
The hope is that if the Republican’s gain control of Congress, they could reduce the amount of spending the Democrats are planning. This in turn would ease potential inflationary pressures, thereby reducing the need for further interest rate rises.
Elsewhere, a speech from Federal Reserve policymaker John Williams could be helping to support the US Dollar. Williams indicated in his speech that inflation was ‘still way too high’ and that interest rates may need to go ‘significantly higher’.
Pound (GBP) Hindered by Ongoing Recession Fears
The Pound (GBP) fell against the majority of its pees this morning as an absence of data releases has left UK investors with little to work with.
Tepid domestic headlines are also providing little support and are merely reiterating the UK’s bleak economic outlook.
As the UK is in a recession, any news relating to the country’s worsening state seems to be weighing on the Pound. According to Deutsche Bank representatives yesterday:
‘Looking further ahead, we remain more downbeat on the economic outlook… Headwinds to the UK economy will almost inevitably push the economy into recession’.
Today slowing sales across a number of popular UK businesses and a potential downturn in the housing market are the latest indicators of a deepening cost-of-living crisis
Amid this bleak outlook for the UK economy, Sterling slumped.
Pound US Dollar Exchange Rate Forecast: USD to Climb on Election Results?
Turning to later today the Pound US Dollar exchange rate will likely be driven by the outcome of the US election.
At the time of writing, the results remain on a knife edge. The Republicans are leading in the House, while the Democrats look as though they might get a majority in the Senate. A victory for the Democrats could trigger more risk-off trade, thereby boosting USD, as Stephen Innes of SPI Asset Management explains:
‘Gridlock cross-checks each party’s “worst impulses,” and less activist fiscal policy is conducive to lower market volatility. That could be particularly helpful in 2022 and 2023 to the extent it calms rates volatility, the principal sponsor of this year’s historic cross-asset malaise.’
Turning to the UK, investors might turn their attention to the Bank of England’s (BoE) Silvana Tenreyro. Her speech on Thursday could dent the Pound if she continues with her dovish rhetoric.
In the meantime, investors will likely continue to focus on domestic headlines. If the news focuses on the worsening economic outlook, the Pound could face further headwinds.