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Pound US Dollar Exchange Rate Rises, US Federal Reserve Cuts Interest Rates amid ‘Huge Geopolitical Risks’

October 31, 2019 - Written by John Cameron

GBP/USD Exchange Rate Improves, US Markets Cautious Following Fed Rate Cut
The Pound US Dollar exchange rate improved today, with the pairing currently trading around $1.2934 after last night saw the US Federal Reserve cut interest rates for the third time this year, with the Fed signalling that it would likely finish with easing for now. However, this left US markets feeling jittery as they had expected a more hawkish tone from the bank this month.

Edward Moya, an Analyst at the trading firm OANDA, commented:

‘[Fed Chairman Jerome] Powell delivered a hawkish cut that has pretty much locked the Fed into keeping the rates on hold in December and possibly into the spring, despite huge geopolitical risks from the trade war and Brexit. A lot could go wrong in a moments notice and this may go down as huge policy mistake.’

While yesterday saw the US flash growth figure for the third quarter beat expectations at 1.9%, underlying concerns for the US economy have continued to prevent the ‘Greenback’ from gaining against the Pound today.

However, US Dollar investors will be looking ahead to today’s US jobs figures, and with any signs of improvement, we could see the USD/GBP exchange rate begin to claw back some of its losses.

GBP/USD Exchange Rate Edges Higher despite Sinking UK Consumer Confidence
The Pound (GBP) gained on the weaker ‘Greenback’ this morning despite today’s release of October’s UK GfK consumer confidence figure, which fell below forecasts at a six-year low from -12 to -14.

Tarrant Parsons, an Economist at RICS, was downbeat in his assessment, saying:

‘It remains to be seen what impact the latest Brexit developments have on confidence across the sector, but with the picture unlikely to become clear until into the New Year it may well mean hesitation continues over the near term.’

Ongoing developments ahead of the December 12 election are still leaving the Pound directionless today, with analysts forecasting current polling numbers to shift dramatically in the next few weeks.

As a result, UK political developments remain the main driver behind the GBP/USD exchange rate today.

Derek Halpenny, European Head of Global Research at MUFG, commented:

‘[Prime Minister Boris] Johnson has cross-party support and [the opposition] Labour Party has lost a fair lot of the credibility it had in the 2017 election. So that’s reflected in the stability in Sterling – markets believe the Conservative party will hold on to power and have a Brexit deal agreed with the EU.’

GBP/USD Outlook: Could the ‘Greenback’ Sink on Weak US Economic Data?

Pound traders will be looking ahead to tomorrow’s release of October’s UK Markit Manufacturing PMI, which is expected to sink deeper into contraction territory from 48.3 to 48.2. As a result, we could see Sterling begin to lose some of its gains against the US Dollar.

Meanwhile, US Dollar investors will be looking ahead to tomorrow’s release of October’s US nonfarm payrolls figure, which is expected to ease from 136 thousand to 85 thousand.

Tomorrow will also see the release of the US ISM Manufacturing PMI for October, which is expected to remain in contraction territory at 48.9.

The GBP/USD exchange rate will continue to be driven by the UK’s political developments, with UK markets paying particular attention to how the three main parties will approach their campaigns ahead of the December 12 general election.

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