Pound US Dollar Exchange Rate News: GBP/USD Plummeted amid Midterm Election Drama

November 9, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Plummeted amid Midterm Election Drama

US Dollar (USD) Soared as ‘Red Wave’ Fails to Materialise

The US Dollar (USD) is experiencing mixed success on Tuesday as the market remained relatively muted as the results of the midterm elections continue to trickle through.

As millions of Americans cast their vote in what is essentially a referendum on how President Joe Biden is faring in the halfway point. An expected ‘Red Wave’ of Republican support failed to materialise in what would have led to gridlock in the US government. However, the Democrats have performed better than expected, but the battle for the House of Representatives is still too close to call.

Despite a cautious market mood, the ‘Greenback’ enjoyed strength against many of its strongest peers, but unexpected outcomes could cause further volatility in the market. If the Democrats continue to surprise, the markets could see further fiscal expansion, with higher Treasury yields and in turn, a stronger US Dollar.

However, a Republican win could see the ‘Greenback’ come under increased risks as any move by Biden is likely to be opposed in the Senate, delaying fiscal decisions. Until the outcome is known, which might not be for a few days, expect the US Dollar to trade erratically.

Pound (GBP) Soured on Mounting Economic and Political Pressures

The Pound (GBP) plunged on a myriad of headwinds on Wednesday as a lack of major data left Sterling exposed to domestic issues.

Political turmoil returns to the fray after a brief stint on the sidelines as Gavin Williamson resigns as Cabinet Office minister. A Sunak appointment, Williamson was left with no choice but to resign in the wake of a string of accusations of bullying and immoral behaviour. The Conservative government never seems far away from the next scandal, but Sunak comes under fresh scrutiny as it is the third time Williamson has had to leave the cabinet due to questionable conduct.

Elsewhere, with markets continuing to digest the concerning news that the UK has entered a recession, warnings over online retailers have sounded in the wake of Made.com’s downfall. Sean Moran, insolvency partner at Shakespeare Martineau, commented on the perfect storm of recession fears and persistent supply chain issues could lead to further collapses:

‘After increasingly lengthy delivery times caused by supply chain and logistic issues, it appears that many customers began to cancel orders and seek refunds (from made.com).

‘Economic pressure continues to mount for the e-commerce sector, with the share price of online fashion giant ASOS also reportedly falling by more than 80% earlier this year, as well as the recent demise of online mattress retailer Eve Sleep. As consumers continue to tighten their belts due to of the cost-of-living crisis, retailers will have to work harder to entice purchasers, particularly for luxury or high-value items.’

Meanwhile, preventing further significant losses is the positive news from Egypt that the Northern Ireland protocol is nearing an amicable resolution. Both Prime Minister Rishi Sunak and European Commission Ursula von der Leyen met at the COP27 conference and have agreed to work on a solution to the Northern Ireland issue. A spokesperson for Downing Street said of the meeting:

‘The Prime Minister reiterated the need to find solutions to the very real problems (the NI protocol) had created on the ground in Northern Ireland. They agreed on the importance of working together to agree a resolution.’

GBP/USD Exchange Rate Forecast: Midterm Election Results to Bolster the US Dollar?

Looking ahead, the Pound US Dollar exchange rate could see further movement as results continue to roll in. If an expected gridlock in the US government was to happen, the ensuing volatility could see the ‘Greenback’ climb on a risk-averse sentiment.

Meanwhile, without major data to go on until GDP growth data on Friday, Sterling could continue to be under pressure from the economic woes gripping the UK economy.

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