Foreign Exchange: Trump Agenda Fuels Fresh Dollar Buying, Pound Sterling Hits 1.26

November 17, 2024 - Written by Tim Boyer

STORY LINK Foreign Exchange: Trump Agenda Fuels Fresh Dollar Buying, Pound Sterling Hits 1.26

The underlying dynamics remain intact in global markets and the dollar has continued to make gains with the currency index hitting 12-month highs.

There are expectations that policies under the incoming Trump Administration will lead to a stronger dollar through higher interest rates and aggressive trade policies. The Republicans have gained a small majority in the House of Representatives, potentially lessening opposition to the Trump agenda.

The Euro remains under pressure while the Pound has been unable to resist the dollar advance, but has shown resilience given expectations of Bank of England caution over interest rate cuts.

In this environment, the Pound to dollar (GBP/USD) exchange rate has hit 4-month lows near 1.2650.

UoB commented; “Sharp and swift momentum increase suggests GBP/USD is ready to resume its downtrend, targeting a break of 1.2665 with the potential of further decline to 1.2565.”

The Pound to Euro (GBP/EUR) exchange rate has found support below 1.2000 and strengthened to near 1.2040.

Domestically, the RICS October housing index recorded a further net improvement to 16% from 11% previously, above consensus forecasts of 12% and the strongest reading since October 2022.

According to Tina Paillet, president of RICS: “The pending expiration in the higher stamp duty threshold in spring 2025 may cause homeowners and first-time buyers to rush to take advantage of the current rate, but this will likely be followed by a weaker trend after the deadline has passed.”

Following yesterday’s inflation data, Fed officials have also warned that interest rates may not be able to decline much further.

According to MUFG; “Yesterday’s price action highlighted that there was strong demand to buy US dollars at weaker levels in anticipation that it will continue to strengthen encouraged by the incoming Trump administration’s policy agenda which is expected to lift US inflation and hurt economic growth outside of the US.”

It added; “At the current juncture, there is no obvious trigger to reverse the US dollar’s current strong upward momentum.”

ING commented; “Despite our view that the dollar will stay strong throughout next year, the very short-term picture still looks a bit more nuanced as long dollar positioning is starting to look quite stretched and a wider (albeit not long-lived) dollar correction could be on the cards.

Markets continue to expect that US trade policies will hurt Europe.

According to Rabobank; “That Europe will probably draw the short straw in a scenario of rising protectionism and potential trade tensions with the US has been a key theme in markets since Trump’s smashing victory.”

It added; “Overnight, the Associated Press has called a House majority for the Republicans, which only further supports the view that this will give the incoming Trump team the confidence to make swift and broad-ranging policy changes from day one. So swift that it could overwhelm its European partners, especially since they are distracted at home.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts