US Presidential Elections and GBP/USD pair - Frenemies for life
Currency exchange rates are currently jumping at a rapid speed. While already not being a very stable market, currency trading is now subjected to a significant turmoil that is mostly caused by the major developments all around the world that are becoming more and more difficult to foresee. Two major geopolitical players - the United Kingdom and the USA, are currently undergoing the political processes that would, in the end, drastically change the countries’ respective domestic and foreign policies. Great Britain is still facing uncertainties over the future of Brexit and the possibility of finding a common ground with Brussels, all while having to tackle the second wave of COVID-19 and attempt to recover the national economy amidst the new regulations in place. Simultaneously, the United States is getting ready for what seems to be an enormous political mess, with President Trump warning that he will not give up his office easily. Meanwhile, the state of the American national economy does also seem gloomy, as the oil demand is falling steadily and the emergency package offered by Democrat policymakers is yet to be set in motion.
When it comes to the impact of major geopolitical developments on the state of the GBP/USD pair, it is clear that both the base and quote currency have a long way to go until the relative stability is reached. While the main concern for the base of the pound sterling is still the threat of hard Brexit, the quote currency is struggling to tackle widespread public frustration that followed the first Presidential debates of this Wednesday.
Hard Brexit fears, new regulations and widespread anxieties - What is happening with GBP today?
The unstable situation that is currently occurring in the United Kingdom is greatly reflected by the instability of the GBP. The new COVID-19 related measures were introduced by PM Boris Johnson last week in an attempt to counter the surge of confirmed cases across the country.
The new curfew has proved most damaging to the hospitality industry, especially that of food catering - which, together with hotel and accommodation providers makes up for a significant chunk of the national economy. On top of that, since the future of the epidemiologic situation in the country is unclear, there is a high chance of further measures and a full lockdown, which, consequently, would translate into the government issuing more support packages to those who lost their sources of income amidst the outbreak of a global pandemic. Brexit remains to be the single most important elephant in the room, that is yet to be addressed. There is still no prospect for a proper agreement to be reached in Brussels, and the anxious state of markets demonstrates that most investors are anxious about the talks that could last until the New Year. The final straw is the statement of the Governor of the Bank of England, who, contrary to his previous claims, announced that if needs be, the bank is prepared to cut interest rates down to zero or below. This announcement of Governor Bailey, or, more specifically, his drastic change of narrative, from that strongly against the reduction of interest rates to being open to the possibility of that happening, has caused a stop to what seemed to be the GBP recovery against EUR and USD.
Political turmoil, state of uncertainty and emergency package on the way - The latest news about USD
In the United States, the state of uncertainty is just as persistent as that of the United Kingdom.
President Trump made it painfully clear that in case he loses in the upcoming elections, he will not give up the Office without a fight. He went on to say that voting by post is a fraud in the making and that it could potentially steal a victory away from him. On top of this particular prospect for the long-lasting political stagnation, the US economy is still struggling to make a full recovery and return to the pre-pandemic state of affairs. Since the global demand for oil has decreased drastically as a result of the outbreak of COVID-19, one of the main drivers of the US economy has been struggling to keep it afloat. Nevertheless, there might be some light at the end of the tunnel for the US national economy. Democratic lawmakers introduced a new emergency support package that Nancy Pelosi referred to as “compromise measures”. Experts believe that in case the package is passed and implemented properly, it could play a pivotal role in recovering the overall state of economic affairs. Meanwhile, as of today, the US dollar continues to grow by utilizing its role as the “safe-haven” amidst the heated, but largely uninformed Presidential Debate between Donald Trump and Joe Biden. The first in the series of 4 debates, left the general public increasingly frustrated and with no clear answers to the most pressing questions, as instead, both candidates resorted to a continuous flow of personal insults.
What does this mean for the GBP/USD pair?
In the aftermath of the aforementioned Presidential debate, the exchange rate for GBP/USD pairs fell by 0.3%, and here is why.
First of all, as explained earlier, USD continues to benefit from its status as a safe haven. The first round of the US Presidential Debates showed that the state of the world’s largest economy is still unclear. President Trump refused to give a clear answer to whether or not he will try to dispute the election results and did what seemed to be an encouragement of white supremacist groups. At the same time, GBP stopped is gradual increase amidst the fears that were ignited by the Bank of England Governor claiming that negative interest rates are not entirely ruled out. While some experts believe that such a state of the pound sterling is only temporary and is bound to be short-lived, it seems like it feeds well into the overall state of anxiety and wariness of the global economy.
