The pound vs dollar interbank exchange rate stands at 1.3229 today at the time of writing. This is its highest in nine months, or since March 20th 2019.
By comparison, back on August 12th, sterling was as low as 1.2024 against the so-called “greenback”. So it’s since strengthened by 10.02%, or by over 12 cents.
This is because, when you transfer money to the USA from the UK, you might get a higher US dollar total, compared to if you’d exchanged currencies in the last nine months.
To stay updated with the pound vs dollar interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, select ‘GBP’ (Great British Pound) to ‘USD’ (United States Dollar.)
Also, to check what’s influencing the value of sterling against the “mighty buck” recently, go to our GBP to USD Exchange Rate Updates page. Here, simply click on the latest article.
One reason why the GBP to USD interbank exchange rate has hit this nine-month high is because the latest opinion polls continue to suggest that the Conservatives will win a majority at today’s UK election.
Another factor why the pound to US dollar interbank exchange rate has gained in value is because, yesterday, the US Federal Reserve said that the bar to its lifting interest rates is high.
A third partial explanation why sterling vs dollar interbank exchange rate strengthened is because it’s hoped that the United States will delay announcing new tariffs on China, this Saturday 15th.
However, turning to the UK’s general election today, there remains the possibility of a ‘hung’ Parliament, in which no single political party wins, which could affect the value of the pound.
GBP to USD Rate Gains, as Tories Tipped to Win Election Majority
As I mention, one reason why the pound vs dollar interbank exchange rate has hit this nine-month high is because the latest opinion polls continue to suggest that Prime Minister Boris Johnson’s Conservative Party will win a majority of MPs, at today’s UK general election.
In general, the financial markets want a single political party to win today’s vote, to finalise Brexit faster, and provide stability to the UK’s outlook.
For example, according to Kantar’s final survey yesterday, the Tories stand at 43% support, ahead of Jeremy Corbyn’s opposition Labour Party’s 34% support, a 9% lead.
In addition, according to Deltapoll’s most recent opinion poll, PM Johnson’s party has risen by 1% in the last week, to 45%, while Labour has gained 2%, up to 35%. So this suggests a 10% lead for the Conservatives.
Overall, Politico’s “poll of polls”, which aggregates the results of all the polling companies covering the UK election, shows the Tories at 43% to Labour’s 34%, a 9% lead.
This is Politico’s final “poll of polls” ahead of Britons going to the ballot boxes today. So it’s the most recent snapshot we’ve got of people’s voting intentions, ahead of the exit poll, released at 22.00 GMT.
As a result of the Tories’ lead in the polls, the financial markets have lifted the probability that PM Johnson’s party will win a majority of MPs by 5% from yesterday, up to 73%.
This suggests that the world’s money managers are close to ¾ confident that the Conservatives will be able to form a stable government, with a majority of seats in the House of Commons, based on today’s vote.
For example, Ranko Berich at Monex Europe says that “a Conservative majority is a comfortable base case at the moment.”
In general, global investors want today’s UK election to be decisive, in which a single party wins a majority of seats. This is because, first, it’s hoped that this way the UK can at long last ratify its Brexit deal, ahead of the current deadline of January 31st 2020.
Then, the UK could get on with negotiating its future trade deal with the EU, while unlocking Britain’s public investment, in schools, hospitals and transport.
As a result, British businesses might feel more confident about the outlook, encouraging them to hire more employees and invest. This could accelerate the UK’s economic expansion in 2020, thereby creating a “virtuous circle”.
With all this in mind, the seemingly high possibility that today’s election will deliver a decisive result has helped strengthen sterling, to this nine-month versus the dollar on the interbank market.
Sterling to US Dollar Gains, as US Federal Reserve Talks Down Rate Hike
In addition, another factor why the sterling to US dollar interbank exchange has reached this nine-month high, is because yesterday, the US Federal Reserve ruled out the possibility of hiking interest rates in the immediate future.
This has weakened the greenback, because comparatively low interest rates make investing in US dollar-denominated assets less profitable for investors.
On Wednesday 11th December, the Fed, America’s central bank, held interest rates steady at 1.5%-1.75%, as widely forecast. However, earlier on Wednesday we’d learnt that US inflation rose by 0.3% in November, to 2.1%, above the Fed’s official target.
Given this, it was thought that the central bank could use yesterday’s accompanying press conference to signal higher rates ahead.
However, in the event, Fed Chairman Jerome Powell talked down the possibility of lifting US interest rates, based on November’s above-target inflation.
Mr. Powell said that it would take “a significant, persistent” increase in America’s price pressures, for the Fed to tighten monetary policy. Mr. Powell added that higher interest rates are less necessary than in the 1990s mid-cycle.
As a result, the US central bank looks set to maintain US interest rates at 1.5-1.75% for the foreseeable future, following its three cuts earlier this year.
In part, this is because Mr. Powell said recently that both America’s economy and interest rates are in “a good place”. In November, America’s jobless rate fell back to 3.5%, a joint multi-decade low, pointing to a healthy economy.
Following the Fed’s release on Wednesday, Juan Perez at Tempus Inc said that “A Fed determined to maintain an accommodative financial environment seems to finally be playing against the greenback.”
The US central bank’s press conference yesterday has weakened the US dollar, because comparatively lower US interest rates encourage money managers to buy assets elsewhere.
Pound Vs Dollar Rate Gains, as US Tipped to Delay Tariffs on China
Moreover, a third partial explanation why the pound vs dollar interbank exchange rate has strengthened today is because US President Donald Trump’s administration is being tipped to avoid imposing additional trade tariffs on China, ahead of this Saturday 15th’s deadline.
This has weakened the US dollar, because this would improve the global economic outlook, outside the USA.
At present, President Trump’s administration will impose tariffs on an extra $160 billion of Chinese imports to the USA this Saturday, unless the US Commander-In-Chief decides otherwise.
Unlike the previous rounds of tariffs, these would be applied to consumer goods, so are likelier to lift prices for America’s shoppers more than in the past. This runs the risk of slowing the US economy.
However, ahead of this Saturday’s deadline, it’s been reported that President Trump may delay or cancel the tariffs. This is because, first, America’s Head of State may wish to avoid raising prices on America’s consumers.
Second, the USA and China are close to finalising a “first phase” trade truce, to ratchet down their trade war. This could support America’s economic growth in 2020.
Paradoxically however, these reports that President Trump might not impose the tariffs have weakened the US dollar, even though America’s economy would benefit.
This is because, if President Trump avoids the tariffs, the global economic outlook could improve. This encourages financial markets to buy assets outside the “safe haven” United States, including the UK’s pound sterling.
GBP/USD Rate Might Be Affected, Ahead of UK’s Election Results Tomorrow
However, turning to the UK’s election today and tomorrow, the pound vs dollar interbank exchange rate could be affected, depending on the results of the vote.
In particular, although the financial markets are seemingly confident of a Conservative majority, there remains the risk of another ‘hung’ Parliament. This is when no single party wins a majority of seats in Parliament.
There’s a risk that today’s election could deliver a ‘hung’ Parliament, because not all the opinion polls point to a Tory majority win. For example, Comres’ last survey yesterday put Labour 3% higher, at 36%, closer to the Conservatives’ 41%.
Notably, this is below the 7%-10% lead that’s traditionally needed for the first-place party to win a majority of MPs in the House of Commons.
Oliver Allen, UK Economist with Capital Economics, says that "The Conservatives failing to win a majority would come as a shock, and could result in a significant drop in the Pound. We suspect that it could fall as low as $1.20/£."
After all, if today’s UK election result isn’t decisive, then many international money managers would be caught out, as they’ve factored in a Tory majority.
If there’s a ‘hung’ Parliament tomorrow, then MPs may continue to decline to ratify the UK’s Brexit deal. In this case, the UK could run up against its current Brexit deadline, of January 31st 2020.
This again raises the risk that the UK could exit with “No Deal”, or have to ask Brussels for yet more time. This possibility concerns the financial markets, so could impact the value of sterling.
Get A Free Exchange Rate Quote
Get a free exchange rate quote to get a competitive exchange rate, and find out how much you could save with Pure FX.
You’ll get a competitive exchange rate for your money transfer.
Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.