The U.S. presidential election finally closed the curtain on a very dramatic show with a plot twist fit for Netflix. It was a battle between either the first female president and the first convicted felon to be president. In true American fashion the underdog won and a 'Trump card' was played with a much larger than expected Republican victory. The election has definitely stirred up the financial markets with currencies spinning like a roulette wheel in Vegas and central banks scrambling like they're on Trump’s new 'X' (formerly Twitter) hit list. Investors have massively piled into U.S. assets that are expected to benefit from Trump's proposed policies on tariffs and taxes which has also strengthened the Dollar.
Meanwhile this Afternoon, the Bank of England has cut interest rates for only the second time in more than four years, a response to last weeks budget. Let’s break down the key movements, how they’re shaping the major currencies, and what to keep an eye on as central banks begin to respond.
Key Updates:
- The U.S. Dollar surged to a four-month high post-election, backed by optimistic expectations around Trump’s growth-focused policies.
- The Pound strengthens after todays MPC meeting where the BoE reduce interest rates by 0.25% in response to last weeks budget.
GBP
The British Pound had a rocky week against the U.S. Dollar, experiencing a dip amidst the Dollar’s surge. The Pound has shown resilience but remains sensitive to the unfolding U.S. policies.
Today, the Bank of England announced a 0.25% cut in the base interest rate to 4.75%. The Bank's Monetary Policy Committee forecast of Rachel Reeves' first budget as chancellor predicts an increase in inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.The pound has risen 0.35% on that news at the time of writing on the news.
Key data releases to watch:
- Today: BoE announcement of the November MPC Summary, minutes, and the Monetary Policy Report.
USD
The U.S. Dollar has been the star of the show, rallying strongly after Trump’s win. Markets are anticipating that his policies might bring growth, consequently reducing the need for rate cuts by the Fed. The Federal Reserve’s upcoming meeting is crucial, as it could set the tone for U.S. monetary policy in the months ahead. If the Fed opts for a 25-basis-point cut but hints at a more cautious approach moving forward, it could keep the dollar elevated.
This strength in the Dollar has far-reaching implications, impacting other economies heavily reliant on the U.S. for trade. Countries like Japan are already seeing their currencies weakened in response, prompting discussions of potential interventions to stabilise their own economies.
Key Dates to Watch:
- 7th November: The U.S. Federal Reserve is expected to announce its interest rate decision, which could have global economic implications.
EUR
The Euro has dropped to levels not seen since late July, mainly as a reaction to the Dollar’s post-election strength. For the European Central Bank (ECB), these developments raise questions about how to support the eurozone economy amidst a strong Dollar. If the Fed signals a more hawkish stance, it could add additional pressure on the ECB to maintain or even enhance its dovish position.
European businesses engaging in USD transactions may face increased costs, as the USD strength translates into more expensive imports. At the same time, some relief might be expected if the euro remains stable against other currencies, potentially balancing out the costs for trade within the region.
Final Thoughts:
This election has certainly shaken things up in the FX world. For those with upcoming transactions in USD, this could be a moment to reassess strategies, as the Dollar’s strength may make certain conversions more costly. Meanwhile, if you’re converting USD into Euros or Pounds, staying updated on ECB and BoE announcements will be critical in navigating these fluctuating rates despite things looking good due to the Dollar strength.
