The GBPUSD exchange rate look set for a volatile few days ahead, with the final day of the US election taking place today and the result to be announced later this week. Going into the last day of voting, Joe Biden is currently leading the national polls against Donald Trump and the markets are expecting a Biden victory, with USD having made gains against sterling over the past week. However, the same was true in 2016 when Hilary Clinton was leading the national polls all the way but lost to Trump in the key swing states and there is every chance this could be the case again this year.
A factor that could lead to more exchange rate volatility than might usually be expected is the expectation that it may take a few days or even weeks before the winner is declared this year. The reason for this is down to the fact that there has been record voting attendance of around 100m and the fact that many have voted via postal vote and therefore many states will not be able to declare their results on election night. If there is a delay in releasing the results this could lead to increased uncertainty and therefore volatile swings in GBPUSD value.
GBP Strength Subdued Ahead of Second National Lockdown
Sterling has also remained subdued against the dollar and the euro this week following Boris Johnson’s announcement over the weekend that the UK will be going into a second national lockdown for at least four weeks as of this Thursday. The national lockdowns in the UK and across Europe have helped strengthen USD, which is seen as a safe-haven currency for investors in times of global uncertainty. Although Sterling has not been too negatively impacted as a result of the announcement, it is likely that the impact of the lockdown on the economy will have implications on the GBPUSD rate moving forward.
The decision to send the country into lockdown was approved by Parliament on Monday after Boris Johnson told MPs there was ‘no alternative’ in order to avoid a huge number of deaths over the winter from the virus. The decision is expected to knock 3% of UK GDP Q4 of this year as a result of the impact it could have on jobs and the hospitality and leisure sectors in particular. There is also a strong possibility that the likely impacts on the economy will have a knock-on effect to future Bank of England monetary policy decisions which will also impact GBP value.
Could the BoE Cut Interest Rates?
The BoE are due to meet this Thursday and will likely discuss whether further interest rate cuts or added Quantitative Easing measures will be needed to help the economy through the aftereffects of the upcoming lockdown. Generally speaking, the currency in question tends to devalue when a central bank eases monetary policy and therefore we are likely to see the pound come under pressure if the BoE hint towards the chances of monetary easing measures this week.
In more positive news for the pound, which in usual circumstances may have seen Sterling make significant gains in value this week, reports over the weekend suggested that Brexit negotiations are progressing positively and that both sides are beginning to work towards a compromise on UK fisheries – a key sticking point in negotiations so far. In a report from Bloomberg over the weekend they stated, “A compromise is emerging on the issue of what access EU boats will have in the UK fishing water”. As both EU and UK economies start to feel the impact of renewed lockdowns, the last thing they will want is further uncertainty owing to Brexit.
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