November 11, 2024 – Written by John Cameron
STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Pressured by Anticipated Republican “Red Wave”
The Pound to US Dollar (GBP/USD) exchange rate weakened at the beginning of this week as markets priced in a likely Republican control of all three branches of the US government.
GBP/USD was trading near $1.2898, approximately 0.2% lower than Monday’s opening levels.
The US Dollar (USD) climbed broadly higher on Monday as anticipation grew that Donald Trump’s Republican party might secure a majority in the House of Representatives.
A ‘Red Wave’ would see Republicans holding key government positions, allowing Trump to more freely implement his economic policies.
Trump’s proposed tax cuts and tariffs are generally considered inflationary, which has bolstered the US Dollar by lowering market expectations for further Federal Reserve rate cuts.
Yeap Jun Rong, a market analyst at IG, noted, “Trump’s victory has led to reduced rate-cut expectations going into 2025, as a potential ‘Red Wave’ could clear the way for his spending and tax policies, while his stance on tariffs may further complicate the Fed’s inflation strategy.”
The US Dollar’s gains were moderated, however, due to lighter trading volumes on Monday with US markets closed for Veterans Day.
The Pound (GBP) struggled on Monday as concerns grew about the economic impact of a potential Trump presidency on the UK.
Trump’s tariff policies could pose a significant threat to UK economic growth, with some analysts cautioning that they may cut UK GDP growth by half over the next two years.
That said, speculation that Trump may offer a ‘preferential’ trade deal with the UK helped to somewhat limit Sterling’s losses at the start of the week.
Looking forward, the GBP/USD exchange rate may face additional pressure on Tuesday as the UK’s latest jobs report is released.
September’s figures are expected to show a slight rise in unemployment to 4.1%, alongside continued slowing in wage growth.
This may fuel Bank of England (BoE) rate cut expectations, potentially weakening the Pound.
Meanwhile, USD investors will focus on Wednesday’s US inflation report, with any rise in inflation likely to further dampen Fed rate cut bets, possibly pushing the US Dollar higher.
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TAGS: Pound Dollar Forecasts
