Pound Sterling nosedives as Trump wins US presidential elections

06 Nov 2024, 07:35 by Sagar Dua · FXStreet

The Pound Sterling plunges against the US Dollar as Trump wins the US presidential elections.
Trump’s victory could significantly dent the UK’s economic growth.
Investors see the Fed and the BoE cutting interest rates by 25 bps on Thursday.

The Pound Sterling (GBP) plummets to near 1.2850 against the US Dollar (USD) in London trading hours on Wednesday. The GBP/USD pair faces an intense sell-off as investors rush to the so-called ‘Trump trades’, with Republican candidate Donald Trump winning the United States (US) presidential election over Democratic rival Kamala Harris.

According to the Associated Press, Trump has been elected as the 47th President of the US after he cleared the 270 seats hurdle after winning in the key battleground state of Wisconsin.

The impact of Trump's victory is clearly visible in risk-sensitive currencies, which are significantly down against the US Dollar. Meanwhile, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, posts a fresh four-month high at around 105.30.

Risk-perceived currencies have been hit hard as investors expect higher import tariffs in Trump’s administration, which will significantly impact exports of United States (US) close trading partners. Trump also promised lower corporate taxes if he wins, which would allow the Federal Reserve (Fed) to maintain a hawkish interest rate guidance.

Apart from the US presidential election, investors will also focus on the Fed’s monetary policy meeting, scheduled on Thursday. The Fed is widely anticipated to cut interest rates by 25 basis points (bps) to 4.50%-4.75%. Therefore, investors will pay close attention to the Fed’s commentary on interest rate guidance.

Daily digest market movers: Pound Sterling stays on sidelines with BoE policy under spotlight

Except against the US Dollar, the Pound Sterling exhibits a mixed performance compared to its major peers on Wednesday. The British currency is expected to trade sideways, with investors focusing on the Bank of England’s (BoE) interest rate decision, which will be announced on Thursday. The BoE is expected to cut interest rates by 25 bps to 4.75%. This would be the second interest rate cut this year. The BoE started its policy-easing cycle with a usual rate cut of 25 bps on August 1.
Investors expect the BoE rate cut decision to be a 7-0 vote split, while the other two Monetary Policy Committee (MPC) members are expected to support leaving interest rates unchanged at their current levels.
Investors will pay close attention to BoE Governor Andrew Bailey’s press conference to know the impact of the United Kingdom (UK) budget for FY2025 on the inflation outlook and the monetary policy action in December. There would also be some questions about the impact of Trump’s victory on the UK economy if he wins or remains in the lead by then.
According to economists at the National Institute of Economic and Social Research (NIESR), the UK economic growth would be just 0.4% if Trump’s tariff plans were implemented. The agency also sees a slower Gross Domestic Product (GDP) growth at 1.2% next year and 1.1% in 2026, even without Trump’s tariffs, Reuters reported.

British Pound PRICE Today

The table below shows the percentage change of the British Pound (GBP) against listed major currencies today. The British Pound was the strongest against the Euro.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		1.60%	1.00%	1.59%	0.38%	0.68%	0.40%	1.29%
EUR	-1.60%		-0.59%	-0.02%	-1.20%	-0.92%	-1.19%	-0.31%
GBP	-1.00%	0.59%		0.58%	-0.61%	-0.32%	-0.60%	0.29%
JPY	-1.59%	0.02%	-0.58%		-1.17%	-0.88%	-1.17%	-0.28%
CAD	-0.38%	1.20%	0.61%	1.17%		0.29%	0.02%	0.90%
AUD	-0.68%	0.92%	0.32%	0.88%	-0.29%		-0.28%	0.62%
NZD	-0.40%	1.19%	0.60%	1.17%	-0.02%	0.28%		0.89%
CHF	-1.29%	0.31%	-0.29%	0.28%	-0.90%	-0.62%	-0.89%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Technical Analysis: Pound Sterling seems vulnerable near 200-day EMA

The Pound Sterling dives to an 11-week low near 1.2850 against the US Dollar, which aligns with the 200-day Exponential Moving Average (EMA). The GBP/USD pair faced significant offers after a mean-reversion move to near the 50-day Exponential Moving Average (EMA), which trades around 1.3000.

The Cable has also delivered a Rising Channel breakdown on a daily timeframe, suggesting that a bearish reversal has been triggered.

The 14-day Relative Strength Index (RSI) falls back below 40.00, suggesting that the bearish momentum has resumed.

Looking down, the round-level support of 1.2800 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the psychological figure of 1.3000.

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).