- The British Pound Plunges Against the US Dollar as Trump Wins North Carolina and Leads in Other Key States.
- Trump’s victory could significantly affect the UK’s economic growth.
- Investors expect the Fed and BoE to cut interest rates by 25 bp on Thursday.
The British Pound (GBP) plummets to around 1.2850 against the US Dollar (USD) in early trading hours in London on Wednesday. The GBP/USD pair faces an intense sell-off as investors rush into so-called ‘Trump trades’ after several exit polls showed Republican candidate Donald Trump with a clear lead over his Democratic rival Kamala Harris in the election. US presidential elections
According to the Associated Press, Trump has been announced as the winner in the key state of North Carolina and is also leading in the other six key states: Pennsylvania, Michigan, Georgia, Arizona, Nevada and Wisconsin.
The impact of Trump leading the election polls is clearly visible in risk-sensitive currencies, which are significantly lower against the US Dollar. Meanwhile, the Dollar Index (DXY), which measures the value of the Dollar against six major currencies, posts a new four-month high around 105.30.
Perceived risky currencies have been hit hard as investors expect higher import tariffs in the Trump administration, which will significantly impact the exports of the 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.
Aside from the US presidential election, investors will also focus on the Fed’s monetary policy meeting, scheduled for 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 comments on interest rate guidance.
Daily Market Summary: Sterling on the sidelines ahead of BoE meeting
- Except against the US Dollar, the British Pound exhibits a mixed performance compared to its major peers on Wednesday. The British currency is expected to trade sideways, with investors focused 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 began its policy easing cycle with a customary 25bp rate cut on August 1.
- Investors expect the BoE’s rate cut decision to be a split 7-0 vote, while the other two members of the Monetary Policy Committee (MPC) are expected to support keeping interest rates unchanged at their current levels. .
- Investors will pay close attention to BoE Governor Andrew Bailey’s press conference for the impact of the United Kingdom’s (UK) fiscal year 2025 budget on the inflation outlook and monetary policy action in December. There will also be some questions about the impact of Trump’s victory on the UK economy if he wins or continues to lead by then.
- According to economists at the National Institute for Economic and Social Research (NIESR), UK economic growth would be just 0.4% if Trump’s tariff plans were implemented. The agency also forecasts 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: British Pound Plunges Near 200-Day EMA
The British Pound plunges to an 11-week low near 1.2850 against the US Dollar, which aligns with the 200-day EMA. The GBP/USD pair faced significant bids after a mean reversion move near the 50-day exponential moving average (EMA), which is trading around 1.3000.
Cable has also delivered a breakout of the Ascending Channel on a daily time frame, 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 support level of 1.2800 will be a great cushion for the British Pound bulls. To the upside, Cable will face resistance near the psychological figure of 1.3000.
The British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/ USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its main objective of “price stability” – a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and may affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important data that is published and affects the British Pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
