Pound Sterling fell sharply in the early hours of this morning by 1.4% against The USD before recovering slightly as it is now a matter of a couple of hours before Donald Trump is officially announced as the 47th President of The United States. Trumps win comes alongside a win in the Senate will give Trump no opposition to his Pro-Tariff and low-tax agenda. Trumps implementations of tariffs and tax cuts is inflationary which will allow The Federal Reserve to slow the tempo of interest rate cuts, allowing further strength for The Dollar.
With the official outcome still to be announced, there is potential room for The Dollar to strength by another 2% roughly. We’ve also seen both EUR/USD and GBP/EUR move off the back of this result. The Euro-Zone is the single largest trading partner for The US, and with Trump planning to introduce 10% Global Import Tariffs this will now lead to an increase in manufacturing costs and lower business output in Europe which is dragging the EUR/USD pair to lows of 1.07. The reason why GBP/EUR is climbing closer to 1.20 is due to the fact that The UK and US have a special relationship in place, mainly surrounding services which don’t attract tariffs.
Moving into tomorrow, we have both Central Banks in The US & UK with Interest Rate decisions. Both The Federal Reserve and The Bank of England are expected to reduce current rates by 25 basis-points, but forward guidance from both parties could lead to further volatility for the three main currency pairs. One thing to consider with The Federal Reserve however, as mentioned earlier, Trumps tariffs are inflationary and therefore we would expect The Federal Reserve to at some point slow the pace of rate cuts. This could also potentially lead to a change in governor for The Federal Reserve to avoid a conflict of interest on policies.
GBP/EUR 1.1979 GBP/USD 1.2882 GBP/AED 4.7335
GBP/AUD 1.9557 GBP/CHF 1.1265 GBP/CAD 1.7906
GBP/NZD 2.1593 EUR/USD 1.0746 GBP/ZAR 22.7514