Trump Expectations Dominate the Pound, GBP/USD Bounces

November 25, 2024 - Written by Frank Davies

STORY LINK Trump Expectations Dominate the Pound, GBP/USD Bounces

The US Dollar traded lower at the Monday open following the news that President-elect Trump had nominated Scott Bessent to be Treasury Secretary.

The nomination of Bessent increased hopes of less disruptive US trade policies which triggered a dollar correction and recovery in European currencies, but underlying US currency sentiment remained strong.

The slide in yields has undermined the Euro while global developments dominated the Pound.

The Pound to Dollar (GBP/USD spiked to high just above 1.2600 from 6-month lows just below 1.2500 on Friday, but then retreated to 1.2565.

The Pound to Euro (GBP/EUR) exchange rate traded just below the 1.2000 level.

Ray Attrill, head of FX research at NAB commented; "Bessent has publicly lauded dollar strength following news of Trump's election win, so I admit to being somewhat perplexed by the suggestion that the weakening in the dollar is because of his appointment."

He added; "He is an avowed fiscal hawk, so perhaps that has something to do with it, but seeing is going to be believing in this regard. The dollar was likely due some consolidation having risen for eight weeks in a row for only the third time this century and many technical indicators were flashing overbought.”

Interest rate expectations and seasonal trends will be key elements.

MUFG commented; “Despite the stronger run of US inflation data we still expect the Fed to follow through and cut rates by 25bps again in December unless there is significant upside surprise in the November nonfarm payrolls report.”

The bank pointed to a rise in continuing jobless claims and added; “It supports our view that the Fed is more likely to skip cutting rates in January than December. If we are wrong and the Fed passes on a December rate cut it will reinforce the USD’s upward momentum.”

ING commented; “seasonal dollar weakness may now offer some headwinds to the DXY. Yet, as we discussed on Friday, it looks like geopolitics and the diverging US-eurozone macro story will keep the dollar bid into year-end after all.”

Danske Bank still expects seasonal dollar vulnerability; “We maintain our expectation of a 25bp Fed cut in December and foresee the USD rally losing steam as year-end approaches.”

Nordea added on the dollar; “From a strategical perspective, we think the current move has legs to run, but from a tactical perspective, we think caution is warranted considering the market has moved much closer to our forecast in a very short time.”

The German IFO business confidence index dipped to 85.7 for November from 86.5 the previous month and below consensus forecasts of 86.1.

There was a notable further decline in the current assessment while the expectations component declined only marginally for the month. Markets remain very confident that the ECB will cut interest rates again in December, underpinning GBP/EUR.

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TAGS: Pound Dollar Forecasts