There’s a lot going on this week to consider when looking at the pound’s current rate against the dollar, with the election of Donald Trump in the US taking the headline spot and central bank decisions from the Bank of England and Federal Reserve for forex traders to grapple with.
The dollar was trading at around the $1.29 mark, with the pound ticking 0.5% higher before lunchtime on Thursday. The pound has recovered somewhat after “Trump trades” pushed up the dollar, as he glided to a decisive victory on Wednesday.
The US Dollar Index (DX-Y.NYB), which tracks the greenback relative to a basket of foreign currencies, is down 0.3%.
Sterling was under more pressure against the euro, down slightly to trade just below 1.20.
“The GBP/USD exchange rate has held up remarkably well so far, with the volatility in the pair far more contained than one would have perhaps expected under a Trump win and Republican clean sweep,” said Matthew Ryan, head of market strategy at Ebury.
“We would argue the main reason for this is that the UK economy is nowhere near as exposed to the global economic cycle than the Euro Area, and it’s much lower reliance on demand for China can only be seen as a positive in the face of Trump’s tariff proposals.”
The market is pricing in a 25-basis point interest rate cut by the BoE’s Monetary Policy Committee (MPC), bringing it down to 4.75%. This follows the Bank’s first rate cut in over four years, made in August. The Fed is also expected to cut rates later on today.
Gold has dipped following the US election, down from around the $2,753 mark to trade at $2,672 today.
Analysts have attributed the weakness to a strong dollar and speculation about what a Trump term will mean for geopolitics.
“Gold is weaker for a second day post-election on firmer yields and the strength of the dollar…but also — Trump the peacemaker?” said Neil Wilson, chief market analyst at Finalto.
“Gold has decoupled from real yields for a while now and we have talked a lot about it being a geopolitical hedge more than ever — does the market think DJT is going to bring peace? His diplomatic style was uncultivated, but it worked. Geopolitics is a hard one to pin down.”
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“I think with gold the main thing to consider is what happens to the long end of the yield curve.” He added that fiscal deficits and the never-ending spending of western governments were a major factor post-Covid.
