Pound Sterling Today: Traders Prepare for Seismic UK, French and US Elections

July 4, 2024 - Written by David Woodsmith

STORY LINK Pound Sterling Today: Traders Prepare for Seismic UK, French and US Elections

The Pound to Dollar exchange rate is trading close to 3-week highs ahead of major economic and political developments on both sides of the Atlantic.

After the weekend, there will be a new UK government and the possibility of a new US Democrat Presidential candidate which will cause a major shift in political dynamics.

UoB commented; “While the risk has shifted to the upside, it is worth noting that there is a solid resistance level at 1.2805, ahead of last month’s high of 1.2860. To keep the momentum going, GBP must not break below 1.2665.”

As far as the UK election is concerned, there are extremely strong expectations of a Labour Party victory.

Anything apart from a large majority would represent the largest shock in recent times.

MUFG commented; “The Labour party’s pledge to prioritise economic stability and respect fiscal rules is curtailing nervousness over the risk of looser fiscal policy and a loss of confidence in the pound. On the other hand, investors will welcome greater political stability in the UK and the possibility of an improvement to the Brexit trade deal that could support the pound.”

The dollar overall has lost ground in global markets after weaker-than-expected US data with the ISM services-sector business confidence data following the manufacturing sector into contraction.

ING commented; “This is a significant story as historically these have been the best lead indicators for changes in the economic cycle and suggest downside growth risks are intensifying.”

The bank added; “This certainly boosts the case for a September interest rate cut from the Federal Reserve as it ticks all the boxes of weaker growth, slowing inflation and a deteriorating jobs market.”

Rodrigo Catril, senior currency strategist at National Australia Bank commented; "Slowly but surely, what we're starting to see is a bit of a turn in the U.S. economic data flow."

The very important US jobs data will be released on Friday.

According to MUFG; “Overall, the developments give us more confidence that inflation and growth in the US will continue to slow providing encouragement for the US rate market to price back in more rate cuts from the Fed in the year ahead. A key assumption behind our outlook for a weaker US dollar heading into next year.”

US yields have declined on economic grounds, but markets are also monitoring political developments.

President Biden has continued to insist that he will remain the Democrat candidate for in November, but talk of his withdrawal has continued to increase with a surge in speculation that there will be an announcement during the weekend.

Rabobank expects uncertainty will help support the dollar; “In view of the upcoming US election and the uncertainties connected with Fed policy, the summer promises to be anything but quiet for markets. Irrespective of short-term noise, we remain of the view that the USD is likely to retain a firm profile well into next year with the potential for a Trump presidency supportive of this outlook.”

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TAGS: Pound Sterling Forecasts