GBP to USD forecast: pound feels the weight of political uncertainty as the election campaign commences

pound feels the weight of political uncertainty as the election campaign commences

Election uncertainty, weak Purchasing Manager’s Index (PMI) readings and today’s Bank of England (BoE) monetary policy meeting combined to leave the pound in the doldrums yesterday afternoon. The GBP vs USD rate dipped to its lowest level in almost a week, settling just below 1.29. Better-than-forecast UK services PMI only gave the pound a brief leg up on Tuesday, before the reality of the situation set in yesterday – that it still represents a seventh consecutive month of declines.

US Nonfarm productivity data sees biggest drop since 2015

With so much weighing on the pound at present, the GBP/USD interbank rate was unmoved by disappointing economic figures from the US yesterday afternoon. For example, Nonfarm Productivity data highlighted that American workers were unexpectedly less productive during the third quarter – the biggest drop since the fourth quarter of 2015.

It took a moderately upbeat speech by New York Federal Reserve President John Williams to trigger any movement, causing the pair to drop in value slightly. The dollar was encouraged by Mr Williams’ assessment of the three interest rate cuts made by the Fed since July, which he believes have left the US economy better placed to withstand potential risks.

UK Parliament dissolved for the election

This downward trend continued yesterday evening after Parliament was dissolved and the official election campaign period finally began. Prime Minister Boris Johnson took to the podium to make his first campaign speeches. Despite promising much – from new hospitals to free ports – and comfortably leading in the opinion polls, the uncertainty surrounding the prospect of another hung Parliament gave the pound a headache.

Looking ahead

Outgoing BoE Governor Mark Carney’s last Super Thursday has the potential to send the pound vs US dollar interbank rate lower this afternoon. The bank is expected to leave both the interest rate and the Asset Purchase Facility – also known as Quantitative Easing – unchanged. Therefore, markets are likely to focus on the Quarterly Inflation Report’s forecasts and Mr Carney’s tone around Brexit uncertainty – that’s where the negatives may outweigh the positives, despite renewed hopes that the Brexit deadlock can be broken.

The election campaign will gather pace today, as Labour and the Conservatives unveil their economic plans. Shadow chancellor John McDonnell makes his first major speech of the election campaign, in his home city of Liverpool. While Chancellor Sajid Javid is expected to deliver a speech in Manchester, where he will question Labour’s economic policies.

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