Due to a combination of lingering UK election uncertainty and yesterday’s strong US data, the British Pound to US Dollar (GBP/USD) exchange rate has struggled to hold its best weekly levels. However, the pair is still trending strongly overall thanks to the latest UK election polls, as well as fresh US-China trade uncertainties weighing on the US Dollar. Looking ahead, the pair’s potential for further gains may be limited.
Since opening this week at the level of 1.2832, GBP/USD has been trending with an upside bias due to hopes for the 2019 UK General Election next month.
Last night, GBP/USD touched on a weekly high of 1.2948 before steadying slightly. At the time of writing on Thursday, GBP/USD was sliding from those highs, but still trended almost a cent above the week’s opening levels near the level of 1.2912.
GBP Exchange Rates Slip from Best Levels as Weeks of Political Uncertainty Still Expected
Investors bought the Pound in bulk overnight, following a fresh major poll from YouGov. The poll, using the ‘MRP’ technique of estimating seats rather than vote share, said that the ruling Conservative Party was on track to win a solid majority.
It followed days of polls showing that the opposition Labour Party was gaining and narrowing the gap.
As the YouGov MRP poll was the closest to predicting the hung Parliament outcome of the 2017 General Election though, the news made markets more confident in the chances of a Conservative majority. According to Mikael Olai Milhøj, Senior Analyst at Danske Bank:
‘If it turns out to be right, Prime Minister Boris Johnson will be able to pass his Brexit deal before Christmas without too many problems. Friday 20 December has circulated as a potential voting day,’
However, uncertainty persists. With still two weeks to go until the election and the Labour Party beginning to gain in polls, analysts predict that the Pound’s current mixed movement and volatility could continue despite the rise in hopes for a Conservative majority.
There is also market uncertainty regarding how politics and Brexit will proceed even if there is a Conservative majority. According to Kit Juckes, Currency Strategist at Societe Generale:
‘Apart from the fact that confidence in polls, and polling models, is pretty low, there’s also going to be a greater focus now on the lack of uncertainty about what happens after the election,’
USD Exchange Rates Limp amid Thanksgiving Tensions between US and China
US markets are closed to observe the Thanksgiving Day public holiday today, leading to smaller volumes of market movement on the US Dollar.
With the US Dollar’s appeal already limited in reaction to yesterday’s US data and the latest US-China trade developments, this is leaving the US Dollar’s movement fairly narrow and mixed overall.
Yesterday, the US Dollar enjoyed a jump in demand thanks to news that the US growth rate was projected to be even better than expected in Q3. US growth is now expected to be 2.1% quarter-on-quarter rather than the previously expected 1.9%.
It dampened Federal Reserve interest rate cut speculation and concerns that the US economy was slowing.
Despite this though, US Dollar demand was weighed slightly today by fresh US-China trade tensions.
News that US President Donald Trump had signed a bill supporting Hong Kong protestors has reportedly frustrated Beijing officials, with reports coming in saying that Beijing would take countermeasures if the US interfered with the issue.
These factors all left investors mixed on the US Dollar today.
GBP/USD Exchange Rate Forecast: Politics and Trade Developments Could Cause Late-Week Movement
Amid a lack of notable data due for publication before the end of the week, Pound to US Dollar exchange rate investors will be keeping their focus on UK politics and global trade developments to drive currency movement.
The Pound’s focus on UK politics and election speculation is only likely to deepen over the next two weeks.
Despite the optimism of the latest polls, uncertainty persists. If the opposition Labour Party continues to make gains in polling for example, this could still cause political uncertainty and weigh on the Pound.
Meanwhile, US Dollar investors will be reacting to developments regarding US-China trade relations. If trade relations continue to worsen, concerns that the US economy could slow after all could cause fresh Federal Reserve easing speculation.
Upcoming UK consumer confidence data from GfK, due tomorrow, is unlikely to cause much major Pound to US Dollar exchange rate movement amid this market focus on politics and trade.
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