Pound Sterling to US Dollar (GBP/USD) Forecast: Exchange Rate Softer After UKIP Victory

The Pound to US Dollar (GBP/USD) exchange rate was sliding back towards a 14-month low on Friday as economists grew nervous over the outcome of next years UK general election after UKIP won its second parliamentary seat.

The ‘Greenback’ advanced against most of its major peers following the publication of positive economic data.

The currency found support on Thursday from a report which showed that the Federal Reserve Bank of Philadelphia said that its manufacturing index jumped to a 21-year of 40.8 from 20.7. The result stunned economists who had been expecting a decline to 18.5.

Also lending support to the US Dollar was a separate report which showed that the existing home sales surged to a 13-month high in October.

Demand for the US Dollar continued to be underpinned after the minutes of the Federal Reserve’s latest meeting indicated that officials believe the economic recovery is strong enough to withstand external threats to growth, but offered little additional clarity about when rates could start to rise.

Sterling came under pressure as European Central Bank President Mario Draghi delivered a dovish speech on Friday. As Europe is the UK’s largest trading partner any suggestion that the region’s economy will continue to struggle is seen as a negative for the Pound. Against the Euro, however Sterling advanced.

“Strong recovery is unlikely in the coming months,’ Draghi said in an opening speech at the Frankfurt European Banking Congress. He also suggested that the central bank is ready to ‘step up the pressure’ and expand its asset-purchasing programme.

Also weighing on the Pound was the release of data, which showed that Britain’s public finances improved slightly in October. Despite the improvement, the figure was below economist expectations.

With no more market moving data releases due, the GBP/USD exchange rate is likely to remain in the 1.564 region.