Pound Sterling Braced for Huge Overnight Swings on US Election Result

November 6, 2024 - Written by David Woodsmith

STORY LINK Pound Sterling Braced for Huge Overnight Swings on US Election Result

Currency markets are relatively calm on Tuesday as traders await the US election results, but there are expectations of high volatility once results start to be projected.

The Federal Reserve and Bank of England (BoE) interest rate decisions will also be important background influences.

The dollar has drifted lower, but the Pound to Dollar (GBP/USD) exchange rate has not been able to challenge 1.3000 again and settled around 1.2985.

In the near term, GBP/USD could trade in a 1.27-1.31 range depending on the outcome.

The Pound to Euro (GBP/EUR) exchange rate settled around 1.1920.

ING commented; “With an exceptionally close US election upon us, plus the outcome likely to deliver a binary impact on currency markets.”

According to Commerzbank; “Everyone will sit tight through the night and not make any big bets. Those who needed to hedge should have done so by now, and those who are sure of themselves have probably already taken their positions. So for today, all we can do is wait.”

The main focus will be on the Presidential vote, although the congressional results will also be important for the medium term.

There will also be concerns over the threat of prolonged delays in announcing results which could provoke unrest.

Commonwealth Bank of Australia currency strategist Carol Kong commented; “Any delays and/or disputes over vote counting can also add to currency volatility this week." The winner may not be known for days after Tuesday's vote, though Trump has already signaled that he will attempt to fight any defeat, as he did in 2020.”

ING commented; “Given the run-up in the dollar in October, we think we need to see a Red Sweep for the dollar to push on much further. A Harris win would seem a benign outcome and prove a dollar negative – those three currencies: the euro, the Canadian and the Australian dollars could do well here.”

Danske Bank added; “A Republican sweep in today's elections would provide support for broad USD and lift yields at both short and long ends of the USD curve on the back of rising inflation and debt sustainability concerns. A Harris win and/or divided Congress could have the opposite effect if fiscal policy stance remains closer to status quo. Trump could hike tariffs even as a 'lame duck', complicating the outlook especially for USD FX.”

Danske Bank looked at potential major currency moves; “Overall, EUR/USD could trade anywhere between 1.06 and 1.11 depending on the result.”

Commonwealth Bank of Australia’s Kong added; "We judge financial markets are now positioned for a Harris win. The USD can therefore fall modestly by 1%-2% this week if Vice President Harris wins and lift materially if (former) President Trump wins.”

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TAGS: Pound Dollar Forecasts