Dollar Dips as Trump Trades Scaled Back, Big Week for Pound

November 4, 2024 - Written by Tim Boyer

STORY LINK Dollar Dips as Trump Trades Scaled Back, Big Week for Pound

This will be a hugely important week for all asset classes, including the Pound, with the US election, Federal Reserve meeting and Bank of England (BoE) rate call.

There is still a high degree of uncertainty over the US elections with markets remaining in a state of flux over the Presidential and Congressional outcomes, when the result might be declared and the market reaction.

According to Rabobank; “One way or another, history will be made this week. To say the lead up to the US Presidential election has been engulfed in controversy is one thing, what comes next may be more of a defining point, and not for the right reasons.”

It added; “Should the Republicans sweep both houses and former President Donald Trump re-enter the White House, the Democrats will likely cry foul, but are not expected to take the same path the former President will no doubt favour should the shoe be on the other foot. Sound and fury.”

MUFG commented; “A Trump win and Red Sweep would be the most bullish outcome for the US dollar while a Harris win with a divided Congress could see the US dollar quickly giving back last month’s strong gains.”

The dollar has retreated on Monday with traders winding back Trump trades.

The Pound to Dollar (GBP/USD) exchange rate briefly tested 1.3000 before paring gains and settling around 1.2950.

Positioning ahead of Tuesday’s election will be important.

ING commented; “Markets are seemingly scaling back some Trump trades, and we suspect the next two days can see some abnormal swings in USD crosses due to tighter volatility conditions ahead of a closely contested and highly binary US election.”

Position adjustment into the vote will also have an impact on moves once the outcome is known.

According to Commonwealth Bank of Australia Carol Kong; “Markets are pricing in a higher chance of a Harris win now, which is consistent with the moves in the PredictIt betting market. That means the scope for dollar strength is now higher in the event of a Trump win.”

Traders are extremely confident that both the Fed and BoE will cut rates by 25 basis points this week, but there is an important element of uncertainty over guidance.

As far as the Federal Reserve policy decision is concerned, the election outcome could complicate the issue, but markets are pricing in a 100% chance of a further 25 basis-point cut at this week’s meeting.

The chances of a further December cut are also at above 80% and the dollar would gain some support if Chair Powell pushes back against a further move next month.

ING expects steady rate cuts; “In turn, we expect it to continue cutting rates closer to neutral irrespective of which candidate wins.”

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TAGS: Pound Dollar Forecasts