GBP/USD Outlook: Trump Trade Talk Dominates Markets, Pound-Dollar Steady

November 27, 2024 - Written by David Woodsmith

STORY LINK GBP/USD Outlook: Trump Trade Talk Dominates Markets, Pound-Dollar Steady

Overnight, US President-elect Trump stated that he would levy 25% tariffs on shipments from Mexico and Canada due to failure to control drugs and illegal migration. He also reiterated that there would be 10% tariffs on goods from China.

In relative terms, there are expectations that the UK will not be a major target which could protect the Pound in the near term.

The Pound to Dollar (GBP/USD) exchange rate found support close to 1.2500 and rallied to 1.2570.

UoB notes the importance of support in the 1.2475-1.2500 area and added; “GBP/USD must break and remain below 1.2475 before a move to April’s low of 1.2299 can be expected.”

Sterling will, however, be vulnerable if there are wider fears over the global economy and fragility in risk appetite.

ING expects Trump’s tone will signal a tougher stance on trade than seen during the first term and there will be potentially very important implications.

The bank commented; “The above can help set the tone in FX markets into year-end – namely that Trump stands to deliver on his pre-election promises. These policies are generally positive for the dollar. Although the final outcome of the tariff threat may be less severe once negotiations are concluded, we recommend adopting a defensive stance in FX markets for the time being.”

According to MUFG; “We would view this as a timely intervention from President-elect Trump that sends a very clear signal to the financial markets – that the reaction to the nomination of Scott Bessent was wrong – there will be no soft or balanced approach to trade tariff policy and it is highly likely now that the words of Trump should be taken seriously at least to the extent of making clear that tariffs will be a day one reality no matter who is Treasury Secretary.”

It added; “It points to yesterday’s dollar selling as being fleeting with further dollar strength and increased FX volatility ahead.”

MUFG also looked at the Euro-Zone and UK implications.

As far as UK trade is concerned, it noted that the UK runs only a small trade surplus with the US.

It added; “These factors could help contain GBP depreciation if the trade conflict escalates in the new year although the risks remain skewed to the downside indirectly via weakening growth in the euro-zone and globally that would see GBP suffer.”

There are expectations that the Bank of England will maintain a cautious stance with reservations over inflation trends.

As far as data is concerned, the British Retail Consortium (BRC) reported that shop prices declined 0.6% in the year to October after a 0.8% decline previously.

RBC Chief Executive Helen Dickinson commented; “Households will welcome the continued easing of price inflation, but this downward trajectory is vulnerable to ongoing geopolitical tensions, the impact of climate change on food supplies, and costs from planned and trailed Government regulation.”

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TAGS: Pound Dollar Forecasts