With yet another Brexit deadline cancelled, we can all concentrate on trick or treating and apple bobbing today. The pound, however, must have thought it was Christmas rather than Halloween this week: confirmation that a no-deal could be avoided was followed by news of a probable December election, raising hopes that the Brexit deadlock can be resolved. As it turned out, the Prime Minister’s political power play had a limited effect on the GBP to USD pair, as the pound prepares to navigate a period of election-fuelled uncertainty.
While the election – which was passed by the House of Lords last night and now awaits Royal Assent – is forecast to be one of the most unpredictable in modern times, the pound is clinging to the hope that it could bring some much-needed political clarity. For example, if the Government gains a majority in Parliament and the Brexit deal is finally passed, it could trigger an upturn in fortunes for the currency that causes the pound v dollar rate to rise in value.
Fed cuts interest rates again
While the pound was taking comfort in domestic political news, the US dollar was in a tentative mood ahead of the US Federal Reserve’s (Fed) latest interest rate decision. Unsurprisingly, the US Central Bank cut rates for the third time this year, prolonging the longest period of growth in the country’s history, as the crucial 2020 election draws closer.
However, the bank’s chair, Jerome Powell, signalled that it had no immediate intention of cutting the cost of borrowing further; a move that is likely to frustrate the President who wants the Fed to boost the world’s biggest economy and his elections prospects with it. The pound sterling to USD pair moved above the 1.29 level for the first time in a week overnight, despite talk of the forecast rate cut being priced into the market.
US GDP records a better-than-expected rise
The US economy was given a pleasant surprise yesterday, ahead of the Fed’s interest rate announcement, when it was revealed Gross Domestic Product (GDP) figure grew faster than expected in the third quarter – although it slowed slightly as business investment continued to decline. The better-than-expected reading is the result of continued consumer spending, together with government expenditures.
Today in the US sees the release of Personal Consumption Expenditure (PCE) inflation data, Jobless claims figures and Personal Income numbers.
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