The outcome of the US election continues to be cloudy with sentiment swinging one candidate to another as the votes are counted. As we stand former vice president and Democrat Joe Biden is expected to just win the election although incumbent Donald Trump has already said that he would go to the Supreme Court in order to stop the counting of postal votes in an effort to shore up a victory. The US dollar has been whip-sawed in a one-point range today as sentiment turned from one candidate to the other, leaving USD-pairs at risk of further volatile moves.

Sterling received a knock-back earlier in the session when the final Markit PMIs showed that the UK service sector recovery slowed sharply in October. The data revealed that the UK service sector was close to stalling even before the announcement of lockdown 2.0 in England. According to Tim Moore at IHS Markit, ‘November’s lockdown in England and a worsening Covid-19 situation across the rest of Europe means that the UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021’.

Ahead tomorrow, the latest UK quarterly inflation report and the Bank of England monetary policy report with the central bank likely to announce an increase in the UK bond-buying program (QE) of up to GBP100 billion. While the increase in the bond-buying program has been mooted for some weeks now, the latest data and national lockdown will have forced the central bank’s hand.

Brexit talks are likely to continue over the weekend, according to media reports, with both sides recognizing that while progress has been made, a lot more work needs to be done if an agreement is to be reached. If talks do continue next week, Sterling may pick up a small relief bid.

GBP/USD is currently trading either side of 1.3000 after having hit a high of 1.3142 and a low of 1.2912 in today’s session so far, with the move entirely driven by US dollar volatility. It would be best to stay on the sidelines until the outcome of the US election is known.

GBP/USD DAILY PRICE CHART (JANUARY – NOVEMBER 4, 2020)

IG client sentiment data show46.53% of traders are net-long with the ratio of traders short to long at 1.15 to 1. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.