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Pound US Dollar (GBP/USD) Exchange Rate Steady on Backstop Worries and Midterms Election

November 6, 2018 - Written by James Fuller

On Monday, the Pound to US Dollar exchange rate opened in the region of $1.3005 in the morning and closed marginally higher around $1.3063 in the evening.

This appreciation was caused by optimism about an apparent ‘secret’ Brexit deal being made by Prime Minister Theresa May, although official sources were quick to deny the story.

Pound to US Dollar (GBP/USD) Exchange Rate Near 3-Week high despite Brexit Backstop Worries

The Pound (GBP) has traded in a narrow range against the US Dollar (USD) today, although in the bigger picture Sterling is still near the best exchange rate in three weeks.

Today’s lacklustre movement has been caused by more uncertainty about the Brexit process, which has overridden yesterday’s apparent optimism.

It is reported that the only major obstacle to agreeing a Brexit deal is the Irish border, although this has proven to be a difficult problem to solve during negotiations.

In a sign that a border agreement remains elusive, UK government officials and Irish Prime Minister Leo Varadkar have given contrasting takes on a key component of any border deal today.

The biggest bone of contention is the ‘backstop’, an emergency Irish border-preventing measure that would be activated if the UK left the EU without a deal.

Mr Varadkar has declared that a backstop must not be time-limited, but UK government officials have conversely stressed the need to make the arrangement temporary.

US Dollar to Pound (USD/GBP) Exchange Rate Steady ahead of Key Midterms Vote

The US Dollar (USD) has made little definitive movement against the Pound (GBP) today, with the overhanging event of the US midterm elections making USD trading a risky option.

Instead, currency traders are waiting to see which party comes out on top in the midterms – all 435 seats in the House of Representatives are up for grabs, along with 35 in the US Senate.

The Republican Party currently controls both bodies, but historically speaking, midterm elections see the opposition party take over.

Considering the possible results of this key vote, Guardian US National Affairs Correspondent Tom McCarthy says:

‘Election night could end with the Republicans retaining their majority in the House of Representatives and strengthening their majority in the Senate, despite a historic exodus of Republicans retiring from Congress, widespread disapproval of Trump and the customary strength of the opposition party at this stage in the elections cycle.

‘Yet some prominent Democrats – starting with the House minority leader, Nancy Pelosi – are predicting a blue “wave” that will deliver a strong Democratic majority to the House.’

Pound Sterling to US Dollar Exchange Rate Forecast: Are GBP/USD Gains ahead on US Midterms Results?

The next news that could affect the GBP/USD pairing will come from the US, when the results of the midterm election come in over midnight on Tuesday and Wednesday proper.

Widely seen as a reflection of whether US citizens approve of President Donald Trump’s leadership, the midterms result could boost US Dollar demand or cause a crash.

In the former case, if the Republican Party retains control of the House of Representatives and the US Senate then the US Dollar could rally against the Pound.

This result would make it easier for Mr Trump to pass policies like tax cuts, which could lead to a surge in business investment, job creation and economic growth.

On the other hand, the US Dollar is expected to take a tumble if the Democratic Party takes the lead; this would frustrate the President’s policy-passing efforts and could lead to two years of limited activity.

After the dust from the midterms settles, the next news will be Thursday evening’s Federal Reserve interest rate decision.

The US central bank is tipped to leave interest rates on hold at 2.25%, although as a December rate hike is still thought to be on the table, there could be minimal US Dollar movement.

Friday’s ecostats will mainly come from the UK, with GDP, trade balance and output readings all due in the morning.

A faster pace of GDP growth is anticipated, alongside a reduction of the national trade deficit.

Such results could boost Pound Sterling demand, although if the production figures show reduced output then any GBP/USD exchange rate gains could be limited.

The week’s last news might push the Pound higher against the US Dollar, as November’s University of Michigan consumer confidence estimate is tipped to show a slowdown.
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