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Brexit Briefing: GBP Outlook Enhanced as Fiscal Policy Dominates Election

Brexit Briefing: GBP Outlook Enhanced as Fiscal Policy Dominates Election

2019-11-14 09:00:00
Martin Essex, MSTA, Analyst and Editor

GBP price, Brexit news and analysis:

  • Both the ruling UK Conservative Party and the Opposition Labour Party are promising more public spending as they campaign for the UK General Election on December 12.
  • If the winner delivers on its pledges, that could lead to UK interest rates being higher than they would otherwise be – a positive long-term factor for Sterling.

GBP could benefit long-term if UK fiscal policy is loosened

The UK General Election campaign has been dominated this week by new public spending pledges by the ruling Conservative Party and the main Opposition Labour Party. If either were to form a government after the December 12 election, and deliver on its promises, that could force the Bank of England to keep monetary policy tighter than would otherwise be the case.

At present, the BoE Base Rate is at 0.75% and market pricing suggests that UK interest rates are more likely to be cut than raised. However, any reductions might be less than currently expected if UK public spending is raised by a new government – and a rate increase can still not be ruled out entirely.

That is potentially long-term positive for GBP/USD and negative for EUR/GBP even though the BoE might be reluctant to tighten monetary policy while UK economic growth is weak and some analysts argue that rates will need to be kept low to prevent an economic downturn if Brexit is delivered.

GBP/USD Price Chart, Hourly Timeframe (November 8-14, 2019)

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Chart by IG (You can click on it for a larger image)

Brexit Glossary - Brexit Jargon and Terms Explained

For now, GBP/USD is moving broadly sideways, as the chart above shows. However, a move back to the psychologically important 1.30 level, last touched on October 22, cannot be ruled out entirely. Similarly, traders need to watch out for a possible break downwards to below the 0.85 round number to the 0.8488 low recorded on May 6.

Brexit Timeline – The Path Ahead

We look at Sterling regularly in the DailyFX Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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