GBP/USD Exchange Rate Knocked by US Election Debate Clashes
The Pound US Dollar (GBP/USD) exchange rate is on the defensive this morning, after Tuesday night’s US election debate fuelled risk-off sentiment.
At the time of writing the GBP/USD exchange rate is trading at around $1.2827, down roughly 0.3% from this morning’s opening levels.
US Dollar (USD) to Accelerate as US Election Jitters Rise?
As the US election gets into full swing, it looks as though the threat of a highly contentious race for President could see investors increasingly favour the safe-haven US Dollar (USD) in the weeks to come.
This was highlighted by the uptick in USD exchange rates overnight as Donald Trump and Joe Biden clashed in one of the most bitter debates of recent memory.
The first televised debate saw the two spar over the coronavirus pandemic, healthcare and racial tensions.
But it was Donald Trump’s refusal to say whether he would accept the election result that really spooked markets, and dented market risk appetite in the wake of the debate.
This trend may also become more pronounced as we draw closer to Election Day on 3 November as the clashes between Trump and Biden are only likely to become even fiercer, particularly as Trump attempts to close the gap in the polls.
However analysts suggest that a Biden victory could ultimately unwind some of the US Dollar’s gains on expectations for tax hikes.
Economists at Nordea, predict:
‘Should Biden win, it would be good news for markets outside of the US, and we would expect both a weaker USD and a relative outperformance of assets in the rest of the world versus the US.
‘The direct effect on US equities is a bit more mixed as the risk of a corporate tax increase could lead to some profit-taking on the back of a Biden victory.’
BoE Optimism Helps to Cap Pound (GBP) Weakness
At the same time, the Pound (GBP) has been able to temper its losses against the US Dollar (USD) this morning, following comments from Bank of England (BoE) Chief Economist Andy Haldane.
Speaking today, Haldane said that now was not the time for ‘chicken licken’ pessimism which could disrupt the UK’s economic recovery, and pointed to a remarkable improvement in consumer spending in recent months.
Sterling sentiment was also cheered as Haldane poured cold water on the prospect of negative interest rates in the immediate future.