The Pound Sterling to US Dollar (GBP/USD) exchange rate weakened on Tuesday as worries over the UK general election and expectations that the Bank of England will leave interest rates on hold for a longer than forecast period weighed.
The Pound Sterling to US Dollar (GBP/USD) exchange rate fell to a session low of 1.4723
Against other currencies such as the Euro (EUR), the US Dollar exchange rate weakened from a 12-year high as a recent run of disappointing economic data releases out of the world’s largest economy increased expectations that Fed policy makers will deliver a dovish statement on Wednesday and possibly hint that interest rates will remain unchanged for a longer period.
Such an outcome would see the ‘Greenback’ fall sharply against other major peers and give up some of the strong gains it has achieved over the past few weeks.
If the Federal Reserve statement drops its reference to being patient before raising rates and signals that it is ready to begin hiking rates depending on economic data, the US Dollar could firm. However, with economic data coming in below expectations lately it would take a sustained period of positive data released to warrant a rate hike.
As we enter spring in the Northern Hemisphere, economic activity in the USA is likely to improve. An improving Eurozone is also likely to assist US exports and lower concerns over global economic performance.
The Pound Sterling meanwhile weakened sharply against all of its major peers on Tuesday, as investors grow jittery ahead of the UK general election on May 7.
Sentiment on the Pound Sterling also remains vulnerable after Bank of England Governor Mark Carney indicated on Friday that interest rates could remain on hold beyond the start of next year.
No clear election winner is expected in May and the uncertain of the outcome has damaged sentiment towards the Pound. Economists hate certainty and with the upcoming election set to be the most uncertain in decades, the UK currency has suffered.
Recent polls have shown that neither the Labour nor Conservative parties will win enough support to win the election outright leaving open the possibility that deals will have to be reached with other smaller groups such as the SNP or UKIP.
Sterling could regain some ground in Wednesday’s session if the latest UK unemployment and average earnings data comes in strongly and shows that the nation’s economic continues to perform strongly.
