Pound Sterling trades flattish ahead of US presidential election, Fed-BoE decisions

The Pound Sterling trades sideways against the US Dollar in the countdown to the US election.

Investors expect the Fed and the BoE to cut interest rates by 25 bps on Thursday.

Market participants still assess the impact of the UK budget announcements on the country’s inflation outlook.

The Pound Sterling (GBP) trades in a very tight range around 1.2950 against the US Dollar (USD) in Tuesday’s London session. The GBP/USD pair consolidates ahead of the United States (US) presidential election, which will start in the North American session. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, also steadies near 103.80 after a sharp sell-off on Monday.

The Greenback went through a significant unwinding of long positions after the Des Moines Register/Mediacom Poll showed that current Vice President Kamala Harris leads former President Donald Trump by three points in Iowa, the state where Trump won clearly in 2016 and 2020. The US Dollar had a strong run-up in October as traders were pricing in Trump’s victory, given his preference for protectionist policies is expected to support the Greenback’s valuation.

Trump has vowed to levy a universal 10% tariff on all economies, except China – which is expected to face much higher duties – if he wins the presidential election. In addition to that, he also promised to lower corporate taxes, which would likely result in a high inflationary environment.

The US presidential election is the main event this week. However, investors will also focus on the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Thursday. According to the CME FedWatch tool, the central bank is widely anticipated to cut interest rates by 25 basis points (bps) to 4.50%-4.75%. This will be the second interest rate cut by the Fed in a row. However, the size of the cut will be smaller after policymakers voted for a 50 bps rate cut in September.