- The pound sterling is losing against the US dollar after Trump’s victory in the US presidential election.
- A Trump victory would significantly hamper Britain’s economic growth.
- Investors expect the Fed and BoE to cut interest rates by 25 bp on Thursday.
During North American trading hours on Wednesday, the pound sterling (GBP) fell to near 1.2850 against the US dollar (USD). The GBP/USD pair is set for a massive sell-off as investors rush into so-called “Trump trades” that see Republican candidate Donald Trump win the United States (US) presidential election by defeating Democratic rival Kamala Harris.
According to the Associated Press, Trump was elected the 47th president of the United States after crossing the 270-seat barrier after winning the key battleground state of Wisconsin.
The impact of Trump’s victory is clearly apparent on risk-sensitive currencies, which are clearly depreciating against the US dollar. Meanwhile, the US Dollar Index (DXY), which measures the dollar’s value against six major currencies, is hitting a up-to-date four-month high of around 105.30.
Currencies perceived as risky have been hit difficult as investors expect higher import tariffs under the Trump administration, which will have a significant impact on the exports of close trading partners the United States (US). Trump also promised lower corporate taxes if he wins, allowing the Federal Reserve (Fed) to maintain hawkish interest rate guidance.
In addition to the US presidential elections, investors’ attention will also focus on the Fed’s monetary policy meeting scheduled for Thursday. The Fed is widely expected to cut interest rates by 25 basis points (bps) to 4.50-4.75%. Therefore, investors will be paying close attention to the Fed’s commentary on interest rate guidance.
Daily Market Change Summary: Sterling remains mixed amid BoE policy
- With the exception of the US dollar, sterling is showing mixed results compared to its main competitors on Wednesday. The British currency is expected to move sideways, with investors focusing on the Bank of England (BoE) interest rate decision, which will be announced on Thursday. The BoE is expected to cut interest rates by 25 basis points to 4.75%. This would be the second interest rate cut this year. The BoE began its monetary easing cycle on August 1 with a straightforward 25 basis point interest rate cut.
- Investors expect the BoE’s decision to cut interest rates to be made by a 7-0 majority, while the two remaining members of the Monetary Policy Committee (MPC) are likely to support leaving interest rates unchanged.
- Investors will be closely watching BoE Governor Andrew Bailey’s press conference for the impact of the UK’s FY2025 budget on the outlook for inflation and monetary policy action in December. There would also be questions about the impact of a Trump victory on the British economy if he wins or remains in power by then.
- According to economists from the National Institute of Economic and Social Research (NIESR), if Trump’s tariff plans were implemented, economic growth in the UK would be just 0.4%. The agency also sees slower gross domestic product (GDP) growth of 1.2% next year and 1.1% in 2026, even without Trump’s tariffs, Reuters reported.
Technical Analysis: Sterling sees further declines below the 200-day EMA
Sterling falls to an 11-week low near 1.2850 against the US dollar, which coincides with the 200-day exponential moving average (EMA). GBP/USD faced significant bids after mean reversal and approaching the 50-day exponential moving average (EMA) which is around 1.3000.
Cable also presented an ascending channel breakdown on the daily time frame, which suggests that a bear reversal has occurred.
The 14-day relative strength index (RSI) is falling below 40.00, suggesting that bearish momentum has returned.
Looking downwards, the round support at 1.2800 will be the main cushion for the sterling bulls. On the other hand, Cable will face resistance near the psychological value of 1.3000.
