Pound Dollar (GBP/USD) Exchange Rate Trends Lower despite US Election Jitters

Modified: Tuesday, 8 November 2016 16:05 BST - Written by Tim Boyer

STORY LINK Pound Dollar (GBP/USD) Exchange Rate Trends Lower despite US Election Jitters

Mixed UK Production Data Failed to Boost Pound Sterling Demand

As optimism triggered by the High Court ruling over Article 50 faded Pound Sterling (GBP) struggled to maintain its upward momentum at the start of the week.

The UK government appears determined to press ahead with its Brexit schedule, diminishing market hopes that increased parliamentary involvement could prevent a harder exit from the EU.

Although UK manufacturing production was found to have strengthened unexpectedly on the year in September, this failed to offer any particular boost to Sterling, with the corresponding industrial output figures having unexpectedly weakened.

With the outlook of the UK economy still unclear this offered little incentive for investors to buy back into the Pound on Tuesday, setting the Pound to US Dollar (GBP/USD) exchange rate on a downtrend.

US Dollar (USD) Exchange Rates Increasingly Jittery as US Polls Opened

Demand for the US Dollar (USD) was generally muted on Tuesday, with the earlier relief rally that greeted news of the FBI clearing Hillary Clinton having tailed off.

Investors were inclined to take a more cautious view of the ‘Greenback’ as the polling booths opened on the final day of the presidential election, with many still keenly remembering the initial shock of the Brexit vote.


Indeed, as researchers at Danske Bank noted:

‘According to the average of national polls, Trump is enjoying the biggest support since the Republican convention and he has once again managed to comeback, exactly as we warned. The lower risk appetite in recent days is mainly due to election jitters as markets have repriced the probability of a Trump win.’

GBP/USD Exchange Rate Volatility Forecast on US Election Result

Overnight the GBP/USD exchange rate is expected to see some increased volatility, with markets set to react rapidly to the results as they start to come through.

If the numbers start to lean towards a Donald Trump victory then the US Dollar is likely to experience heavy selling, given that the Republican candidate is viewed as a negative for the economy.

On the other hand, should Clinton take the lead then the GBP/USD exchange rate can be expected to extend its recent downtrend further as investor confidence mounts.

A Clinton presidency would be seen to offer greater certainty to markets while also boosting the odds of the Federal Reserve raising interest rates in December, something which would be strongly US Dollar positive.

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