Sterling Trades Muted Ahead Of US Presidential Election & Fed-Boe Decision

Pound Sterling (GBP) is trading within a very tight trading range against the US Dollar (USD) around 1.2950 during the London session on Tuesday. GBP/USD is consolidating ahead of the United States (US) presidential election, which is set to begin during the North American session. The U.S. Dollar Index (DXY), which measures the greenback’s value against six major currencies, also stabilized around 103.80 after a sharp sell-off on Monday.

The dollar experienced a sharp unwinding of long positions after a Des Moines Register/Mediacom poll showed current Vice President Kamala Harris leading former President Donald Trump by 3 percentage points in Iowa, while Iowa Iowa is a state Trump clearly won in 2016 and 2020. The greenback had rallied strongly in October as traders priced in a Trump victory, given that Trump’s preference for protectionist policies was expected to support the dollar’s valuation.

Trump has vowed to impose 10% tariffs across all economies if he wins the presidential election, except China – which is expected to face higher tariffs. In addition, he also promised to reduce corporate income taxes, which will likely lead to a high inflation environment.

The US presidential election is the highlight of this week. However, investors will also focus on the Federal Reserve’s (Fed) monetary policy decision due to be announced on Thursday. The central bank is widely expected to cut interest rates by 25 basis points to 4.50%-4.75%, according to the CME FedWatch tool. This will be the second consecutive rate cut by the Fed. However, the scale of the rate cut will be reduced after policymakers voted in favor of a 50 basis point rate cut in September.

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