GBP to USD Exchange Rate Under Pressure Ahead of Lockdown 2 and 2020 Presidential Election

November 2, 2020 - Written by Tim Boyer

STORY LINK GBP to USD Exchange Rate Under Pressure Ahead of Lockdown 2 and 2020 Presidential Election

Intensifying uncertainty over the coronavirus pandemic and the US 2020 Presidential Election are keeping the British Pound to US Dollar (GBP/USD) exchange rate under pressure today. However, with major developments almost a certainty this week, the pair may be in for huge volatility in the coming sessions as global markets turn attentions towards the US 2020 Presidential Election – which will take place tomorrow.

Last week’s rising coronavirus fears left investors increasingly seeking out safe havens like the US Dollar, which led to GBP/USD losses. GBP/USD opened last week at the level of 1.3041 and spent the week trending with a downside bias. Ultimately, GBP/USD closed the week a little above its weekly lows, at around the level of 1.2944.

Since markets opened this morning, GBP/USD has continued to face pressure from safe haven demand and other factors. GBP/USD briefly touched on a low of 1.2859 earlier, which was the worst level for the pair in about a month. While the pair has rebounded slightly, it still trends below the week’s opening levels in the region of 1.2921 at the time of writing.

GBP Exchange Rates See Fresh Losses as UK Heads for Another Lockdown

Over the weekend, the UK government announced that as its tiered restriction system had failed to sufficiently curb the spread of the coronavirus pandemic, Britain would be thrust into stricter restrictions in the coming week.

If follows weeks of growing pressure on the government to do more about curbing the pandemic, which has seen a huge second wave in Britain in recent months.

While the government has been hesitant to call this new set of a restrictions a lockdown, analysts are essentially seeing it as one. The Pound was weaker when markets opened today, as investors digested what could be an especially difficult winter period for businesses.

Some analysts are predicting that Britain could be in for another recession towards the end of the year. However, Brexit hopes are helping Sterling to avoid worse losses.

According to Raffi Boyadjian, Senior Investment Analyst at XM:

‘UK-EU negotiators are meeting again this week as the talks enter an intensive phase. An update on the status of those talks is expected mid-week, although there is no guarantee that positive headlines will be able to eclipse the grim virus reality.’

USD Exchange Rates Buoyed by Global Political Fears

The US Dollar is a currency often correlated to market safe haven demand. It is a currency which often gains in times of global market uncertainty, which has been the primary cause of the currency’s strength in recent weeks.

Not only is the US Dollar gaining on fresh global coronavirus fears and lockdowns, but uncertainty over US politics as the US 2020 Presidential Election approaches.

The US Dollar’s safe haven appeal means it often gains even in times of US uncertainty. There are fears that a close US Presidential Election could lead to the result being called illegitimate, or recounts or deeper uncertainty.

According to Jordan Rochester, Forex Analyst at Nomura:

‘Volatility is rising because liquidity for hedges around the election is very thin. Everyone’s the same way, there’s no one selling this stuff thinking everything’s great,’

US manufacturing data beat expectations as well, which gave the US Dollar additional support today.

GBP/USD Exchange Rate Forecast: US 2020 Presidential Election Ahead

The coming sessions have the potential to be hugely significant ones for the Pound to US Dollar exchange rate, as Tuesday will see US citizens heading to the polls for the US 2020 Presidential Election.

Polls show that a tight race between US President Donald Trump and Democratic Challenger Joe Biden is highly possible. What’s more, the coronavirus pandemic means that delays in poll results are likely.

Analysts believe that the results are unlikely to be known quickly, and it could take days before a result can be announced. This may mean days worth of heightened global political uncertainty, especially amid the possibility that the result could be called illegitimate.

Essentially, if the result of the Election is called into question, global uncertainty will worsen and safe haven demand could rise further. Safe haven demand is likely to keep the US Dollar appealing in the coming sessions.

The Pound is unlikely to climb much in the coming sessions either, as Britain will head into lockdown again this week and concerns about Britain’s economy are rising.

US factory orders data tomorrow and UK PMI data due Wednesday could influence the Pound to US Dollar exchange rate as well, but the focus will be on the US 2020 Presidential Election.

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TAGS: Pound Dollar Forecasts