FX Focus: Pound hits two-week high against the dollar

The pound snapped a three-day losing streak on Wednesday (2 November), hitting a two-week against the dollar as the US currency suffered from pre-election jitters.

Having fallen to just over $1.22 in the previous session, sterling recovered to hit the highest level against the dollar in two weeks. By early afternoon, the UK currency was 0.74% against the dollar, trading at $1.2327, and gained 0.41% against the euro, fetching €1.1115.

The pound's cause was also helped by a better-than-expected construction PMI reading, which showed British construction sector expanded at its fastest pace since March last month, buoyed by a strong performance in residential projects.

However, a report from ratings agency Standard & Poor's suggested the pound is likely to remain close to its current level after its sharp fall since the UK referendum decision in June to leave the European Union.

"Based on past experience, especially in 2007-2009, we would expect that the Bank of England will choose to see through the rising inflation and focus on mid-term economic growth prospects," said S&P Global Ratings chief economist Jean-Michel Six.

"If, as our review suggests, the pound is now meaningfully undervalued, it will remain so for quite some time."

Elsewhere, the dollar was firmly on the back foot, ahead of tonight's Federal Reserve interest rate decision amid elections-related anxieties returning to the fore after Hillary Clinton's lead over Donald Trump seems to have evaporated following the new FBI probe into her personal email use.

Craig Erlam, senior analyst at Oanda, said that the Federal Reserve is unlikely to deliver a surprise rate hike, although he stressed economists will closely monitor the language in the central bank's statement.

"What will be interesting today is whether the Fed includes any language in its statement referencing a rate hike at the next meeting," he said.

"They have clearly indicated all year that they intend to raise interest rates and in many ways, that has been stepped up in recent weeks. However, with the election outcome once again so uncertain, I wonder whether they'll opt against any reference to the next meeting and simply reiterate the improved economic conditions."

The greenback slumped 0.83% against the yen to ¥103.29, the lowest level against the Japanese currency in over two and a half weeks, and fell against the euro, trading at 0.9012 euro cents. The dollar was also down against its Canadian and Australian counterparts, losing 0.10% and 0.33% to trade at CAD$1.3378 and AUD$1.3036 respectively.