Technical forecasts for the GBP/USD pair today:
- Since Donald Trump’s victory has now been confirmed, the GBP/USD price attempted a rebound, but gains were limited, reaching only the 1.3037 level.
- This marks a recovery for the third consecutive trading session from last week’s losses, which had extended to the 1.2843 support level, its lowest in three months.
- In general, this uncertainty will affect the behaviour of financial markets, as it tends to favor “safe haven” assets such as the US dollar, the Japanese yen and the Swiss franc, while weighing on stock markets and “high beta” currencies such as the Australian dollar.
The GBP/EUR exchange rate also tends to lose value when market fears rise, and we’ve seen the pair fall from a week-opening high of 1.1928 to a low of 1.1870 in the past 24 hours.
The final poll by Five Thirty-Eight shows Harris at 48% and Trump at 46.8%, indicating a statistical tie. Betting markets have seen Trump’s lead over Harris shrink over the past ten days, with PredictIt showing a near-even race on election day. Trump was previously the Favorite in October, strengthening the dollar. However, as the race tightened, the dollar has traded below recent highs.
Markets continue to unwind “Trump trades” on the back of the latest Des Moines Register US election poll, which gives Harris a lead over Trump in Iowa. “Trump trade” are in the dollar’s favour given the higher inflationary implications associated with the former president’s policies of tariffs and tax cuts. In general, uncertainty about the outcome is likely to prevent financial markets from making a big move, and we may see some movement tonight as the first results start to come in. If the initial results show that Trump does well, we expect the GBP/USD exchange rate to fall below 1.30, as the move accelerates towards any confirmation of his victory.
Commenting on the event and the outlook, Robert Thompson, chief economist at IBOSS, said: “If Trump wins, the market reaction will be more ambiguous. A Trump victory is likely to strengthen the US dollar and push up government bond yields because his plans to raise tariffs sharply would boost inflation and reduce the Fed’s willingness to cut interest rates.”
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In terms of the pound, we expect pairs like GBP/AUD and GBP/NZD to also rise on such an outcome as investors start to worry about US-China relations, which has implications for the Australian currencies. According to analysts at Société Générale: “The Australian dollar is already trading at a discount due to concerns about the impact of a Trump victory on China.” The impact of a Trump victory on GBP/EUR will be more contained, and the pair could rise, especially if we see a rally in the stock market.
The question for the euro is whether Trump pushes for trade tariffs on the eurozone, which could impact EUR/USD more than GBP/USD, meaning the GBP/EUR exchange rate could rise.
Citibank warns that if early results suggest Harris performs better than expected, there could be a panic unwinding of long US dollar positions (tariff positions such as the US dollar versus the euro, the Chinese yuan, the Mexican peso and the Korean won). Also, equity markets will do well here as uncertainty fades and “business as usual” returns to calm fears, boosting currencies such as the Australian dollar, the New Zealand dollar and the euro. Furthermore, we could see GBP/EUR come under pressure as the euro shows relief that the eurozone will not face a potential tariff war with the US.
Furthermore, financial markets would react negatively, with the U.S. dollar gaining and risk-sensitive currencies under pressure. GBP/EUR could also be negatively impacted, potentially falling below 1.19.
In the same vein, Citibank’s pre-election analysis says that vote counting will be faster than in 2020 but counting in a few larger counties could continue later in the week. Pennsylvania polls close at 20:00 EST, with Nevada being the last to close among the swing states. Analysts expect results for Georgia, Michigan, North Carolina and Wisconsin to be released overnight, but may need to wait until the following day for Arizona and Pennsylvania, given historical timing and election processing rules.
Citibank adds that some early market action could focus on some key county vote results that could provide a glimpse into broader trends. Expect volatility to increase when these deals start to appear.
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