Pound Profits from Election Optimism
What do you get if you combine Donald Trump trade comments with election optimism just a week before the big vote? The pound sterling to USD rate gets a spring in its step, causing it to sprint to a seven-month high is the answer. Following the US President’s warning that a trade deal with China might not happen until 2021 – comments that weighed on the dollar on Tuesday – the pound was boosted by the latest election forecasts. According to the Betfair Exchange, the implied odds of a Conservative majority rose back to 70% yesterday – up from 66% just 24 hours earlier, when opinion polls had suggested support for Labour was swelling.
Mounting speculation that Boris Johnson can win the support he needs in parliament to break the Brexit deadlock, caused the pound v dollar rate to soar above the 1.30 level. The Labour party is running out of time to mount a charge and significantly narrow the gap on the Tories, making the pound increasingly attractive to investors.
Under normal circumstances, news that the UK services sector contracted in November at the fastest pace since March – further evidence that UK economy has slowed in the final three months of the year – might cause the pound to stumble. Unsurprisingly, the latest IHS Markit/Cips services purchasing managers’ index was overshadowed by election forecasts.
Data Dampens the Dollar’s Spirits
The US economy did its’ best to give the GBP vs USD rate a leg up as well yesterday, by leaving the dollar feeling rather flat. Despite US services and manufacturing both reporting stronger rates of expansion – the fastest pace of economic growth for four months – the improvement in the November PMI surveys came from a low base, meaning optimism remained subdued. And despite figures from the ADP revealing that private sector employment increased by 67,000 in November, this fell way below the previous reading and was worse than consensus estimates of 140,000.
Data comes thick and fast from the US again today: Trade Balance, Initial Jobless Claims, Initial Jobless Claims 4-week average and Factory Orders (MoM). These are bookended by the release of the latest OPEC meeting minutes this morning and another speech from Fed Governor Randal Keith Quarles this afternoon.
If you would like to learn more about factors influencing GBP/USD exchange rates for an upcoming currency transfer, feel free to contact myself, Jonathan Watson, using the form below.