After a shaky start on Wednesday the pound US dollar exchange rate ended the session 0.3% higher at US$1.3199. The pair has pushed 0.2% higher in early trade on Thursday as investors digest a dovish Fed and look ahead to election day in the UK.
The pound is advancing for its fourth straight session. The latest poll points to Boris Johnson and the Conservatives maintaining a lead over Labour’s Jeremy Corbyn, albeit a smaller lead than two weeks ago of just 28 seats, compared to 68 seats.
The pound is pricing in a Conservative victory. This is by no means a foregone conclusion which leaves the pound vulnerable in the case that there in a hung Parliament. Voting polls have already opened and they will close 10pm local time. This is when the exit polls will be released, and the UK will have a good idea as to who won the election.
The pound would favour a strong Conservative majority because this would be the surest way for the UK leave the EU with a deal early next year. A Conservative win with a small majority could also lift the pound slight, although they could be concerns over Brexit being quickly ratified in the case of a small majority. A hung Parliament could send the pound tanking lower as investors fear more years of Brexit uncertainty dragging on the economy.
Dovish Fed Drags On Dollar
The dollar dropped across the board on Wednesday following the Federal Reserve monetary policy announcement and press conference. As expected, the Fed voted to keep rates on hold. However, the central bank’s concerns over inflation and the health of the global economy dented the mood for the dollar. Federal Chair Jeremy Powell said that the central bank would want to see a significant and persistent uplift in inflation before considering hiking interest rate. Furthermore, the dot plot which maps out the future path for interest rates showed that there were no planned interest rate moves expected in 2020 election year.
Tensions surrounding the US — Chins trade dispute will keep investors on edge as they wait to hear whether the Trump administration will apply further tariffs to Chinese imports from 15th December.
|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.