Pound recoups ground as UK voters head to the polls

The pound rallied on Wednesday, rebounding from a sudden sell-off earlier in the week as the UK election continued to dominate market sentiment.

Sterling is in a holding position this morning, with GBP/EUR rangebound at €1.1854, GBP/USD flat at $1.3203, and GBP/CAD muted at C$1.7381, while GBP/AUD and GBP/NZD both hold steady at AU$1.9182 and NZ$2.0055 respectively.

Coming up today (aside from the all-consuming UK election) we have the European Central Bank’s (ECB) latest rate decision.

What’s been happening?

The pound enjoyed a little pre-election bounce yesterday, recouping the majority of its losses from earlier in the week in spite of rising political jitters.

Sterling fell sharply overnight on Tuesday after a key poll suggested that support for the Conservatives was waning, lowering expectations for a 68 seat majority to just 28.

Despite this stoking fears of a hung parliament, GBP exchange rates were able to rally yesterday amid underlying confidence that Boris Johnson will still claim victory in today’s election.

Meanwhile, the euro struggled to find momentum mid-week in an apparent reaction to the publication of Moody’s latest outlook report on European banks.

This saw the rating agency downgrade its outlook for the banks from stable to negative as Europe’s banks face significant pressure from the region’s weak economic growth.

Finally we saw the US dollar tumble yesterday following the Federal Reserve’s latest policy meeting after Fed Chairman Jerome Powell reiterated his stance that there would need to be a significant uptick in inflation for the bank to think about tightening monetary policy again, signalling rates are likely to remain on hold for the foreseeable future. 

What’s coming up?

Looking ahead, the spotlight will of course be on the UK today as voters go to the polls in what is being hailed as the most important election in a generation.

This is likely to limit movement in the pound throughout the day, but we can expect a flurry of activity once the exit poll is released at 22:00 GMT.

Also in focus will be the conclusion of the ECB’s final policy meeting of the year.

While the bank is widely expected to leave rates on hold this month, there is likely to be significant interest in its policy statement given it will be Christine Lagarde’s first as President of the ECB and will lay out the bank’s forward guidance for 2020.

Meanwhile, the only release of note in the US will be second tier PPI figures, which may exert some modest pressure on the US dollar if producer prices are shown to have slowed last month.