The Pound Sterling took a hit against the US Dollar, dropping to near 1.2850 as Republican candidate Donald Trump won the US presidential election. This news sent shockwaves through the market, causing investors to flock to ‘Trump trades’. Trump’s victory was confirmed after winning in the key battleground state of Wisconsin, leading to a surge in the US Dollar Index (DXY).
As investors brace for Trump’s presidency, risk-sensitive currencies have taken a hit with expectations of higher import tariffs and lower corporate taxes. This has led to speculation that the Federal Reserve (Fed) may maintain a hawkish interest rate guidance. The Fed is also expected to cut interest rates by 25 basis points to 4.50%-4.75% in an effort to boost the economy.
While the Pound Sterling remains mixed against other major currencies, it is expected to trade sideways as investors await the Bank of England’s (BoE) interest rate decision. The BoE is expected to announce a 25 bps rate cut to 4.75%, marking the second cut this year. Investors will closely monitor BoE Governor Andrew Bailey’s press conference for insights into the UK budget and the impact of Trump’s victory on the UK economy.
Technical analysis shows that the Pound Sterling has plummeted to an 11-week low near 1.2850 against the US Dollar, aligning with the 200-day Exponential Moving Average (EMA). The GBP/USD pair has also broken down from a Rising Channel pattern on a daily timeframe, indicating a bearish reversal. The 14-day Relative Strength Index (RSI) has fallen below 40.00, suggesting that the bearish momentum has strengthened.
In light of Trump’s victory, economists at the National Institute of Economic and Social Research (NIESR) predict that the UK economic growth could slow to 0.4% if Trump’s tariff plans are implemented. They also forecast a slower GDP growth of 1.2% next year and 1.1% in 2026, even without the tariffs. The impact of Trump’s victory on the UK economy remains uncertain, and it is crucial for policymakers to closely monitor developments and adjust monetary policies accordingly.
