Pound US Dollar Exchange Rate News: GBP/USD Drops as Tepid Market Mood Prevails

November 8, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Drops as Tepid Market Mood Prevails

GBP/USD Exchange Rate Under Pressure Preceding US Elections

The Pound to US Dollar (GBP/USD) exchange rate fell on Tuesday as a lukewarm market mood saw investors favour the more stable US Dollar (USD).

At time of writing the GBP/USD exchange rate traded at around $1.1455 roughly down 0.5% from Tuesday’s opening levels.

US Dollar (USD) Mixed Despite Cautious Market Mood

The US Dollar was up against the Pound (GBP) on Tuesday but was trading in a broad range overall as investors braced for the US midterm elections with the potential for political volatility weighing on the US Dollar.

Economists from DBS have said that if the Democrats lose control of Congress, it could force a change in fiscal policy and create uncertainty in the US:

‘The Republicans will push for spending cuts in Social Security and Medicare in exchange for increasing or suspending the debt ceiling limit. The Biden administration warned that failure to do so would lead to a US debt default.’

With this in mind, the safe-haven ‘Greenback’ was undercut by political tensions on Tuesday, which limited its gains.

Pound (GBP) Pressured by Lack of Data

The Pound was struggling for support on Tuesday as investors turned to domestic headlines.

A lack of significant data meant GBP investors began to refocus on the UK recession and cost-of-living crisis as consumers head for a tough winter.

Rising grocery price inflation reached a staggering 14.7% in October. According to Fraser McKevitt, Head of Retail and Consumer Insight at Kantar, the cost of food will keep rising. McKevitt said:

‘Consumers face a £682 jump in their annual grocery bill if they continue to buy the same items and just over a quarter of all households [27%] now say they’re struggling financially, which is double the proportion we recorded last November.’

Adding to these inflationary pressures was the continued ‘blockage’ of the UK government’s £400 energy bill support. The voucher scheme is meant to support households with electricity costs, but consumers that use prepayment metres are struggling to claim the support. This increased economic woes and weighed on the Pound, despite the government’s assurance it would sort the issue.

GBP/USD Exchange Rate Forecast: USD to Become Volatile Post Elections?

Looking ahead, the Pound US Dollar exchange rate will likely be driven by the outcome of the US midterm elections.

The results of the elections are expected within 24 hours of the polls closing and are likely to be very impactful for USD. If the Democrats manage to maintain the majority of the house, President Joe Biden’s agenda will likely be easier to peruse, which could support the ‘Greenback’.

However, if the Republican Party gains more seats the currency could be dented as they plan to cut funding to vital US sectors, which investors might react poorly too, thus causing headwinds for the US Dollar.

Turning to the UK, the Pound could continue to be driven by domestic headlines in lieu of significant data. Investors will likely be sensitive to news pertaining to the UK’s bleak economic outlook. If the headlines continue to focus on inflammatory pressures the Pound will likely be dented.

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TAGS: Pound Dollar Forecasts