GBP/USD Forecast: Pound Sterling struggles to rebound as US election fuels USD rally
- GBP/USD trades deep in negative territory near 1.2900 in the European session.
- Surging US T-bond yields boost the USD as markets assess US election results.
- A risk rally could help the pair limit its losses later in the day.
GBP/USD declined sharply early Wednesday as the US Dollar (USD) gathered strength on developments surrounding the US presidential election. The pair managed to stage a rebound in the European morning and was last seen trading near 1.2900.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.80% | 0.20% | 1.33% | -0.14% | -0.34% | 0.34% | 0.83% | |
| EUR | -0.80% | -0.64% | 0.08% | -1.34% | -0.84% | -0.86% | -0.37% | |
| GBP | -0.20% | 0.64% | 0.48% | -0.71% | -0.20% | -0.22% | 0.27% | |
| JPY | -1.33% | -0.08% | -0.48% | -1.45% | -1.10% | -0.77% | -0.18% | |
| CAD | 0.14% | 1.34% | 0.71% | 1.45% | 0.00% | 0.47% | 0.98% | |
| AUD | 0.34% | 0.84% | 0.20% | 1.10% | -0.01% | -0.02% | 0.47% | |
| NZD | -0.34% | 0.86% | 0.22% | 0.77% | -0.47% | 0.02% | 0.49% | |
| CHF | -0.83% | 0.37% | -0.27% | 0.18% | -0.98% | -0.47% | -0.49% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Once news outlets started calling Georgia and North Carolina for Donald Trump, two battleground states Republicans lost in the previous election, the USD gathered bullish momentum. In the early European session, Pennsylvania, another swing state that was seen as Kamala Harris' last chance to turn the election around, went to Trump, all but officially confirming his victory.
According to the Associated Press, Donald Trump has secured 267 of the 270 electoral votes needed to win the White House. In Michigan and Wisconsin, two other key states yet to be called, Trump remains in the lead. Meanwhile, the Decision Desk HQ has Trump securing 286 seats vs Harris' 226.
The initial reaction to the US election result triggered an upsurge in US Treasury bond yields. Although it's difficult to say how Trump policies will shape the US economic outlook, markets seem to be turning reluctant to bet on an aggressive Federal Reserve (Fed) Policy easing following this development. On Thursday, the Fed will announce monetary policy decisions.
In the meantime, US stock index futures were last seen rising between 1.8% and 2.7% on the day. A bullish opening in Wall Street, followed by a risk rally, could limit the USD's gains and help GBP/USD hold its ground.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart remains below 50, pointing to a lack of recovery momentum.
On the downside, 1.2850 (static level) aligns as first support before 1.2800 (200-day Simple Moving Average (SMA), static level). In case GBP/USD confirms 1.2900 as support, it could extend its recovery toward 1.2930 (static level) and 1.3000 (100-day SMA).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
