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Pound Sterling (GBP) to US Dollar (USD) Flat on Monday as Both Currencies Weaken

November 21, 2016 - Written by Minesh Chaudhari

The Pound to US Dollar exchange rate plunged last week as investors continued to be bullish on the US Dollar amid hopes of short term economic stimulus, as well as rate hikes from the Federal Reserve, despite the risks of the upcoming Trump Presidency.

GBP/USD lost over two cents in value last week, falling from 1.2598 to 1.2342. The exchange rate performed flatly on Monday morning.

Pound (GBP) Sentiment Drops on Fresh Hard Brexit Worries



Sterling held onto dwindling bullish sentiment last week as traders hoped that the future of UK-US trade relations would be stronger under US President-elect Donald Trump.

The Pound was also strengthened later in the week by a particularly impressive UK retail sales report from October. The results revealed that sales had soared 7.4% year-on-year, but even this burst of Sterling demand was unable to hold against last week’s strong US Dollar trade.

Renewed concerns that the British government would give up access to the European Union’s single market during the Brexit process left UK investments such as government bonds and the Pound less appealing on Monday.

US Dollar (USD) Trump Rally Fades after Week of Bullishness



After the initial shock that Republican Donald Trump had won the US election on the 9th of November, the US Dollar surged and continued to perform strongly throughout last week.

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Traders had hoped that Trump’s plans for short term economic stimulus would materialise and so bought into USD despite the possibility that Trump would still be as anti-trade in practise as he had been on the campaign trail.

A continued slew of solid US ecostats, as well as short-term stimulus hopes, also considerably bolstered bets that the Federal Reserve would hike US interest rates in its upcoming December meeting, which kept the US Dollar climbing and holding new highs throughout the week.

However, speculation that Trump could pick anti-trade cabinet members, reinforcing his protectionist stance, weighed on the US Dollar on Monday, as the ‘Greenback’ was sold from its highs.

GBP/USD Forecast: Recovery Possible in the Week Ahead



After last week’s losses and Monday morning’s largely flat GBP/USD trade, the next direction of the exchange rate will largely depend on the severity of downward factors for either currency.

While the Pound has returned to a downtrend after last week’s strength, this is partially profit-taking and partially ongoing concerns about the UK’s Brexit process.

The US Dollar, on the other hand, has the potential for more bearish behaviour in the next week, depending on the results of US President-elect Donald Trump’s cabinet picks.

Despite Trump’s more neutral stance on some key controversial issues since his election two weeks ago, his cabinet choices will indicate the kinds of policies he hopes to implement. As a result, US markets could enter panic selloff mode if any of Trump’s staff picks reflect concerns about the US becoming more anti-trade under Trump’s Presidency.

Depending on the severity of the reaction to a potentially anti-trade Trump, it could even destabilise Fed rate hike bets which would cause a more long-term downward trend for the US Dollar.

However the opposite is also true. If Trump’s cabinet member choices indicate that Trump’s administration could be more pro-trade than expected, the US Dollar could continue its recent rallies and drag GBP/USD down further.

Tuesday data may also influence the Pound to US Dollar exchange rate. The day’s UK data includes October’s public sector net borrowing results and US existing home sales figures will also be published.
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