Jeremy Corbyn revealed today that Labour will now vote in favour of a December election, saying the party’s condition that a no-deal outcome be taken off the table had been met with the granting of an extension to Article 50. Over the last three weeks, Sterling has risen against the US dollar by more than 5 percent as the chance of a chaotic no-deal outcome decreased, underpinned when the EU granted the UK a three-month extension. However, the threat of an early general election will weigh on the pound’s rally as investors brace for political uncertainty.
Ugo Lancioni, the head of global currency at Neuberger Berman commented: “I don’t see immediately that the risk-reward ratio has shifted in favour of the pound and most of the longer term players are also adopting a similar wait-and-see approach.”
Meanwhile, the US dollar remained under pressure ahead of a Federal Open Market Committee (FOMC) meeting on Wednesday.
The safe-haven currency slipped on rising risk appetite caused by improvements in US-China trade relations and fears that the US Federal Reserve will slash rates for the third time this year.
RBC Capital Markets’ chief currency strategist, Adam Cole described the US dollar as “bouncing around in ranges” ahead of tomorrow’s interest rate decision, and added: “Unless the Fed guidance is explicitly that they’re close to sanctioning another cut then we think that the market expectation is diminished, the dollar goes up.”
Looking ahead, if the Federal Reserve signals further easing this is likely to send USD lower.