Created on November 07, 2024

• The pound fell more than 1%, falling below $1.29, as the stronger dollar gained momentum after early US election results suggested a higher probability of a Donald Trump victory.
• Recently, the GBP/USD losses has extended to the 1.2834 support level; the pair’s two-month low.

Overall, the result has revived “Trump deals,” with expectations that the former US president’s plans to raise tariffs and cut corporate taxes could fuel inflation and keep interest rates high. Meanwhile, the Bank of England is expected to cut interest rates by a quarter of a percentage point on Thursday. However, investors now expect smaller rate cuts next year than expected before last week’s budget announcement. Meanwhile, the Office for Budget Responsibility recently raised its 2025 inflation forecast to an average of 2.6%, up from 1.5% forecast in March. This is closely in line with the Bank of England’s August forecast, which sees inflation at 2.4% in one year, 1.7% in two years and 1.5% in three years.

On another note, UK gilt yields, or government bond yields, a key tool in determining consumer borrowing rates such as mortgages, continue to rise as Donald Trump’s election victory provides fresh impetus. Analyst said, “Financial markets have been gripped by jitters following Donald Trump’s triumphant victory. His policies appear set to add to inflationary pressures and further widen the US deficit, with knock-on effects for the UK economy expected,”

According to reliable trading platforms, the yield (interest rate) offered by two-year UK government bonds rose to 4.51%, while the yield on ten-year bonds rose to 4.57%. added, “Government bonds often move in tandem with Treasury bonds and this special relationship is evident today, pushing up UK borrowing costs sharply.”

UK government bonds were already on edge, with sentiment worsening after concerns about the amount of borrowing the Labour administration was undertaking. “Now Trump’s victory has added to the pressure. Concerns about the inflationary impact of Trump’s promised new round of tariffs are seeping through markets. There are also concerns that his trade policies could hamper UK economic growth. Fears of an emerging stagflation scenario in some economies appear to be haunting markets again.”

By and large, the interest rates that consumers in the UK are exposed to are determined by bond yields as they form a basket of products such as swaps, which in turn influence mortgage rates, credit card rates and lending rates to businesses. US bond yields are rising as investors demand more compensation for holding US bonds, believing their value will fall due to inflation. Meanwhile, Rising yields therefore suggest that markets believe a second Trump term will be more inflationary than the alternative.

Faced with the prospect of higher inflation, economists now expect fewer rate cuts from the US Federal Reserve.

Technical forecasts for the GBP/USD pair today:

According to the technical outlook and performance on the daily chart attached, the general downward trend for the GBP/USD pair is getting stronger. As I mentioned before, stability below the 1.3000 level will strengthen the bears’ control, and the next most important support stations are 1.2880, 1.2800, and 1.2720, respectively. From the last level, the technical indicators will move towards strong oversold levels. On the other hand, and in the same time frame, there will be no initial break of the downward trend without moving above the 1.3150 resistance. Also, the GBP/USD pair will be affected today by the announcement of the Bank of England and the US Federal Reserve, in addition to the reaction to the results of the US presidential elections and Trump’s victory.

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