The pound pushed to a fresh 9 month high of US$1.3215 versus the US dollar on Tuesday before diving lower late in the US session. The pound US dollar exchange rate dropped to a low of US$1.3108. The pound is edging lower in early trade on Wednesday.
The latest YouGov MRP poll spooked pound investors. The MRP poll which ha been labelled the most accurate polls showed that the Tory lead was receding less than two days prior to the election. This means that the chances of a hung parliament have increased. A hung Parliament is being associated with further Brexit indecision and more Brexit uncertainty which has dragged on the British economy for the past three and a half years. This would be a less favourable option for the UK economy and the pound. For this reason, sterling dropped sharply.
The polls update came following a slew of disappointing data. UK GDP, industrial production, construction output and the UK trade balance all surprised to the downside, painting a rather grim picture of the UK economy as it heads to the end of the year.
Today is the final day of campaigning prior to the election. There is no economic data to distract pound investors. Instead, their full attention will be on the polls.
The dollar lacked direction in the previous session amid shortage of relevant data and as investors weighed up trade headlines. Increasing speculation that the US won’t apply the tariff increases has lifted risk sentiment, dragging on the dollar.
US Inflation & FOMC
After a slow start to the week, risk events for the dollar pick up today. Investors will first look towards inflation figures prior to the Federal Reserve monetary policy announcement later in the session.
Analysts are expecting US inflation to tick higher to 2% in November, up from 1.8% in October. Core inflation which excludes more volatile items such as food and fuel is expected to remain steady at 2.3%. These figures ae both on, or above the Fed’s target. Strong inflation numbers combined with last week’s impressive jobs data could lift investor optimism that the Fed may even look to hike interest rates as the next move.
The Fed will be under the spotlight later in the session as the FOMC give its rate decision. The broad expectation is that the Fed will keep rates on hold. Investors will instead look towards the press conference by Fed Chair Jeremy Powell and the dot plot, mapping our future interest rate moves for further clues.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 GBP = 1.28934 USD
Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound.
Or, if you were looking at it the other way around:
1 USD = 0.77786 GBP
In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar.