GBP/USD Exchange Rate to Remain on Stronger Footing as US Presidential Race Draws to a Close

Modified: Friday, 4 November 2016 12:05 BST - Written by Frank Davies

STORY LINK GBP/USD Exchange Rate to Remain on Stronger Footing as US Presidential Race Draws to a Close

BoE Commentary and Brexit Ruling Continued to Boost Pound Sterling Outlook

The appeal of Pound Sterling (GBP) has remained elevated ahead of the weekend, with investors encouraged by the less dovish tone of the Bank of England’s (BoE) November meeting minutes.

As policymakers indicated that interest rates could move up rather than down in the coming months, the Pound surged across the board, with markets pricing significantly lower odds of the BoE cutting rates to a fresh record low.

This boost was supported by the earlier High Court judgement that Article 50 could not be triggered without a parliamentary vote, something which was seen to reduce the likelihood of the UK ending up with a 'hard Brexit'.

Although some of the initial gains of the Pound US Dollar (GBP/USD) exchange rate began to dissipate on Friday morning, Sterling has remained on a generally stronger footing.

Weak Payrolls Data Could Extend US Dollar Downtrend

Confidence in the US Dollar (USD), meanwhile, has been weighed down by an increasing air of uncertainty over the outcome of the US presidential election.

With the polls appearing to have tightened over the last week, markets have been scrambling to price in higher odds of a Donald Trump victory, a result that is generally viewed as economically negative.


This has somewhat eclipsed the release of the October Non-Farm Payrolls report today, with the reaction to the labour market data expected to be a little less marked than usual despite its impact on the outlook of the Federal Reserve.

As Morten Helt, senior analyst at Danske Bank, noted:

‘Following the FOMC statement on Wednesday highlighting the need to ‘wait for some further evidence of continued progress toward its objectives’, the jobs report will be important for the Fed before it makes it mind up about a rate hike in December. However, with the market more or less priced for a rate hike, we would probably need a very weak number to change the market’s mind and send the US dollar lower.’

GBP/USD Exchange Rate Forecast to Trend Higher Ahead of Election Night

Regardless of the US payrolls data, the GBP/USD exchange rate looks set to maintain an uptrend going into the weekend.

As the UK government has pledged to continue its preparations for Brexit in spite of the High Court decision, Brexit-based uncertainty could start to weigh on the Pound once again in the near future.

Nevertheless, the decisive factor for the direction of the GBP/USD exchange rate next week will be the result of the US election.

Should Hillary Clinton triumph then the US Dollar is likely to see a sharp increase in demand, with a loss for Trump boosting the odds of the Fed raising interest rates before the end of the year.

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