Pound to Dollar Exchange Rate Slides as Trump Court Victory Boots USD Demand

July 2, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Exchange Rate Slides as Trump Court Victory Boots USD Demand

A US Supreme Court ruling on Monday triggered a fresh round of speculation that Trump would win the November Presidential election.

US yields moved higher in anticipation of a loose fiscal policy and the dollar gained net support.

The Pound to Dollar (GBP/USD) exchange rate dipped to 1.2615 and close to 6-week lows.

US data and Comments from Fed Chair Powell will be monitored closely later in the day.

UoB notes that a break of 1.26 is needed to drive fresh momentum and added; “if GBP breaks above 1.2700, it would mean that GBP is not weakening further.”

US Treasuries lost ground on Monday with the 10-year yield hitting 4-week highs just below the 4.50% level before settling close to 4.45%.

Economic news was limited during the day, but there was increased speculation that the Republicans could win the Presidential election in November and gain control of both houses of Congress.

A clean sweep for the Republicans would increase speculation over a more aggressive fiscal policy which would tend to put upward pressure on yields.

Higher yields provided net support for the US currency.

There was an important victory for former President Trump as the Supreme Court ruled that former Presidents can have immunity for official actions undertaken during office.

The controversial ruling lessened the potential for prosecutions against Trump, potentially boosting support.

ING commented; “For the second time in five days, the dollar is appreciating on the back of higher perceived chances of Donald Trump winning the US presidency. Yesterday, the US Supreme Court granted Trump some immunity for trying to reverse the 2020 election results, making it unlikely he will face trial before the November vote.”

Chris Weston, head of research at Pepperstone added; "Bond traders have an eye on Trump's increasing odds of taking the White House, and the market senses Trump 2.0 will be inflationary."

ING added; “It is now clear that investors have made the Trump-stronger dollar link. This has also been our interpretation given the prospect of lower taxes, inflationary protectionism measures and greater geopolitical risks under Trump.”

There were also some reports that the Democrats were looking to bring forward Biden’s nomination in an attempt to lower uncertainty, but the debate over replacing Biden remains intense.

According to ING; “Given the market’s growing scepticism of Biden’s chances against Trump, there is a possibility that him stepping down would be a dollar-negative development, especially if he gets replaced by California Governor Gavin Newsom.”

There have been no significant changes in the UK General Election narrative with very strong expectations of a convincing Labour victory.

UK shop prices increased 0.2% in the year to June after a 0.6% increase previously and the lowest increase since October 2021.

Mike Watkins, head of retailer and business insight at NielsenIQ, commented; “Shop price inflation is still slowing and this will be of help to shoppers as they plan their household budgets for essential goods and services.

He added; “And with uncertainty around discretionary spending, we expect the intense competition across the marketplace to keep price increases as low as possible this summer.”

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TAGS: Pound Dollar Forecasts