Following a relatively muted trading session on Tuesday, the pound to dollar rate experienced heightened volatility yesterday – falling by more than one cent into 1.35 midrange territory. Reports that the UK’s third lockdown could remain in place until March weighed on the pound; as did comments from Bank of England Governor, Andrew Bailey who reigniting the Brexit debate by predicting that the free trade deal could cost the UK economy more than £80 billion.
All Eyes on Washington for Dollar
The pair might have fallen further if it wasn’t for the downbeat dollar, which found itself on the defensive in the face of the two runoff elections in Georgia. With the Democratic Party on the verge of taking control of the Senate, the dollar recoiled from the prospect of US President-elect Joe Biden being handed more power to enact legislation – clearing the way for him to execute a generous fiscal stimulus programme when he receives the keys to the Oval Office later this month, which would limit the dollar’s safe-haven demand.
The election was being rerun because none of the candidates in November’s general election met the state’s 50% victory threshold. Democrat Raphael Warnock was the first to get over the line, defeating Republican senator Kelly Loeffler. Attention then turned to the all-important second race between Democrat Jon Ossoff and Republican David Perdue – the winner deciding which party would control the Senate. A short time later it was announced that Mr Ossoff had prevailed, handing the Democrats control of both chambers of the US Congress and the White House for the first time since 2009.
Yesterday’s Federal Open Market Committee (FOMC) meeting minutes revealed central bank officials held interest rates steady at near zero at their December gathering and would continue buying up $120 billion in bonds each month “until substantial further progress has been made toward the committee’s maximum employment and price stability goals.” The dollar remains generally pressured by the FOMC’s decision to unanimously support keeping the pace of asset purchases unchanged.
A choppy day for the dollar in Washington D.C. yesterday was capped off by disconcerting developments on Capitol Hill after Trump supporters ransacked Congress.
An ADP Employment Change report revealed that private sector employment decreased by 123,000 jobs from November to December. Job creation slipped to its lowest level of the recovery as pandemic restrictions in California – the largest economy in the US – overshadow growth across the rest of the country.
Another busy session in the US today sees a raft of influential data released: Trade Balance for November, Continuing Jobless Claims, Initial Jobless Claims, ISM Services New Orders Index for December, ISM Services Employment Index for December, ISM Services Prices Paid for December – and the pick of the bunch: ISM Services PMI for December.
To discuss these upcoming factors and their potential impact on the pound to dollar rate, get in touch using the form below. I’ll be happy to respond personally.
The post Pound to Dollar Rate: Dollar Downbeat After Democrats Take Control of Senate appeared first on Pound Sterling Forecast.
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