Even though markets remain somewhat uncertain in the wake of the US election result this didn’t stop the GBP USD and GBP EUR exchange rates rallying strongly as Brexit-based anxiety eased.
- Hopes of US-UK trade deal boosted GBP USD exchange rate – Pound optimism buoyed as Brexit prospects seen to brighten
- Solid UK construction output data boosted Sterling – UK economy continued to demonstrate signs of strength
- US Dollar outlook volatile with shape of Trump presidency still uncertain – Lack of clarity over key policies weighed on USD confidence
- Worries mount over upcoming Italian referendum – Euro biased to downside over rising risk of populist upset
However, with markets still adjusting to the altered political landscape the potential remains for further bouts of volatility over coming weeks, which could see the Pound struggle to hold onto its recent gains.
Pound (GBP) Rallied as Brexit Optimism Strengthened by US-UK Trade Deal Comments
An unexpected improvement in the RICS house price balance for November helped to shore up the Pound (GBP) on Thursday, rising from 18% to 23% on the month. This indicated that the domestic housing market has continued to shake off the impact of post-referendum uncertainty, encouraging greater hope in the outlook of the wider economy. Sterling’s bullishness was also boosted by commentary from members of Donald Trump’s campaign team, who indicated that the UK would be at the front of the queue when it comes to negotiating a new trade deal. Thus, despite ongoing Brexit-based uncertainty, GBP exchange rates were prompted to trend higher across the board.
The Pound continued its bullish run on Friday morning, capitalising on stronger-than-expected construction output figures. Markets were relieved to see that the construction sector had remained in a positive state in September, despite other signs of the economy having started to falter. With investors already in a positive mood towards Sterling, which has been the major beneficiary of the US election results, this saw Pound exchange rates extending their gains further ahead of the weekend.
Post-Election Market Volatility Continued to Drive GBP USD Exchange Rate Movement
With markets having apparently adjusted rapidly to Donald Trump’s victory the US Dollar (USD) continued to claw back its initial losses. Nevertheless, the decided lack of clarity over the policies that are likely to follow Trump from the campaign trail into the Oval Office has limited the upside potential of the ‘Greenback’. Investors remain somewhat cautious over the election of the divisive Republican candidate, as any benefits of his market-supportive promise of tax cuts could be outweighed by the implementation of some of his more protectionist policies.
Developments in the political landscape will remain the primary influence on the Pound US Dollar (GBP USD) exchange rate for some weeks to come, with the potential for further volatility if market jitters are stirred up again. As Mikael Milhoj, senior analyst at Danske Bank, noted:
‘While it is too early to call the Trump win a clear game changer for GBP, we think GBP momentum could develop further in the near term. As the important resistance level of 1.2480 in GBP/USD has been cleared, technically there should be room for a test of 1.30. The market is very short GBP, according to IMM, suggesting substantial correction potential.’
GBP EUR Exchange Rate Forecast to Benefit From European Political Worries
Despite its early gains on the back of the US election result the Euro (EUR) has been on a generally weaker footing this week. This has allowed the Pound Euro (GBP EUR) exchange rate to strengthen markedly ahead of the weekend, with the single currency weakening in response to dovish commentary from the European Central Bank (ECB). Confidence in the outlook of the currency union was not improved by the news that the Greek unemployment rate had unexpectedly edged higher in August, highlighting the continued economic weakness of the recovering Hellenic republic.
Crucially, the Trump victory has been seen to significantly raise the level of political risk within the Eurozone. With populism on the rise throughout the western world, markets are taking a cautious view of the upcoming Italian referendum on constitutional reform. Should Prime Minister Matteo Renzi suffer a defeat, continuing the trend of recent political upsets, then a fresh bout of uncertainty could eclipse the Euro. On the other hand, if Renzi edges through then the GBP EUR exchange rate could be set on a fresh downtrend.
Current Interbank Exchange Rates
At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending bullishly at 1.16, while the Pound US Dollar (GBP USD) pairing was on an uptrend in the region of 1.26.