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GBP/USD surges, Brexit Party won’t contest Tory seats

Brexit champion Neil Farage boosts chance of Tory election victory by not challenging Tory seats. UK GDP data weak but recession avoided.

Cable shot higher in London trading after Brexit Party leader Neil Farage announced his party would not challenge Conservative Party seats in the upcoming December UK elections, thus substantially increasing the possibility that Prime Minister Boris Johnson can form a solid majority government.

UK third quarter economic data came in at 0.3 last quarter, as expected. Second quarter GDP was negative, so the UK has managed to avoid a recession but annual growth is running at just 1%, the slowest in almost a decade.

GBP/USD surged almost 1% on the Farage news, nearly hitting the $1.29 level before pulling back to around $1.2875.

UK monetary policy on hold during election

Bank of England (BoE) policy makers are unable to signal their reaction to the latest GDP data while the election campaign is ongoing. It is a tradition that BoE remain quiet during elections to avoid perceptions of bias.

Thus not only will there be no decision on any interest rate moves, but the BoE is unable to signal its intent through any public statements nor will any officials be giving speeches during the period.

It is unlikely that the BoE will move to adjust interest rates until January, but analysts say that Brexit developments will be in the fore when it comes to influencing cable, with economic and policy information taking a back seat.

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