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Sterling to Push Higher Against the Dollar

November 9, 2020

As the U.S. election results unfolded on Friday, coupled with an increase in bond-buying by the Bank of England, the GBP began to soar against the USD. Currencies considered riskier, including GBP, have all strengthened as Democratic candidate Joe Biden took the lead over President Donald Trump in key states. Now Biden has all but won, this trend looks set to continue.

The pound is up more than 1% for the week against the weaker dollar, although it retraced around 0.2% on the day to trade around the $1.31 mark. Sterling did, however, lose ground elsewhere against the euro, falling around 0.5% on the day.

Concerns over the terms of Brexit are still having a negative impact on the pound, after senior EU official Thierry Breton said there was a “50/50” chance of a trade deal, with negotiations expected to continue over the weekend. Britain is confident it has made significant preparations for the end of its Brexit transition period, a spokesman for Prime Minister Boris Johnson said.

The Bank of England on Thursday said it was increasing the size of their huge bond-buying stimulus by £150 billion ($197 billion), as preparations are made to soften the economic impact from further coronavirus lockdowns. BoE Deputy Governor Ben Broadbent said on Friday the central bank expects more than 9 million employees will be on the government’s extended furlough job-support scheme in the spring.

“While the (BoE’s) Monetary Policy Committee (MPC) increased the Asset Purchase Facility by GBP 150bn, more than the GBP 100bn that the market expected, there was no change in rates and, significantly, no mention of negative rates,” Marshall Gittler, head of investment research at BDSwiss Group, said in a note.

“Moreover, the MPC projected that inflation would return to the target 2% level by the end of next year even without further rate cuts. Now that that’s out of the way, it’s back to worrying about Brexit.”

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