Pound to Dollar Rate Week Ahead Forecast: Trump Trade to Dominate Sterling

November 17, 2024 - Written by Ben Hughes

STORY LINK Pound to Dollar Rate Week Ahead Forecast: Trump Trade to Dominate Sterling

The Pound to Dollar (GBP/USD) exchange rate has weakened to 4-month lows around 1.2620.

Markets continue to expect Trump’s policies will support the dollar while a weaker than expected UK GDP report curbed Pound support.

A key question is whether the dollar will strengthen further and whether gains can be sustained.

ING expects that GBP/USD will weaken modestly to 1.24 on a 12-month view.

According to ING; “The US electorate has spoken, and Donald Trump has been given an overwhelming mandate for a reversal of immigration, lower taxes, deregulation and protectionism. All of these are positive for the dollar either through the curtailment of the Federal Reserve’s easing cycle or the punishment handed out to trading partners dependent on exports for growth – something Trump plans to change.”

RBC Capital Markets expects dollar strength to persist and commented; “There is enough Trump can do to create a new tailwind for USD in our view, particularly in the face of extreme reluctance from China and others to deliver large-scale fiscal stimulus. The narrative of US exceptionalism is here to stay for a bit longer.”

The latest US consumer inflation data was in line with expectations, but another 0.3% core inflation reading reinforced expectations that it would be difficult to reach the 2% inflation target.

A succession of Fed speakers, including Chair Powell, commented that there was no need to rush interest rate cuts.

Overall, markets cut the probability of a December rate cut to around 60% while there were also expectations of a pause in January.

Traders also expect that policies pursued by the Trump Administration will have an impact on interest rates.

There are expectations that tax cuts and aggressive trade policies will put upward pressure on inflation and deter Federal Reserve interest rate cuts.

MUFG commented; “we expect the US rate market to remain more wary of the risk that the Fed could slow the pace of rate cuts next year to reflect more uncertainty over the inflationary impact from Trump’s policies.”

The shift in expectations underpinned the dollar and investment banks have adjusted their forecasts.

Barclays, for example, commented; “We now think the FOMC will cut by 25bp only twice in 2025, to 3.75-4.00%, versus three cuts earlier, given the higher projected inflation in 2025.”

Investment banks generally expect near-term dollar strength, but there are medium-term reservations.

Credit Agricole commented; “In all, we expect the USD to remain supported in the early stages of Trump’s presidency but to lose ground in H225 as the US relative growth advantage is gradually eroded and Fed cuts mount while Trump’s weak-USD doctrine persists.”

According to HSBC; “We believe the US economy is consistent with a strong USD, especially relative to many of the other economies in G10 FX.”

HSBC did, however, add; “we would caution against being carried away, and there are a number of ways in which this initial USD rally could stall or reverse in the coming weeks and months.”

There has also been speculation that Trump will push for a weaker dollar.

Wells Fargo doubts that this is realistic; “In our view, Trump's preference for a weaker dollar would have to be accommodated by and in coordination with the Federal Reserve, which we view as unlikely.”

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