GBP USD Exchange Rate Forecast Hinges on Trump?s Chances and Interest Rates

Modified: Friday, 16 September 2016 16:07 BST - Written by John Cameron

STORY LINK GBP USD Exchange Rate Forecast Hinges on Trump?s Chances and Interest Rates

US Presidential Election and Fed Rate Decisions to Drive Pound US Dollar Exchange Rate Movement

With some big changes to the US political and fiscal landscapes on the horizon the Pound US Dollar (GBP USD) exchange rate is likely to experience significant movement.

The world, for holders of the US Dollar (currency : USD) at least, may well look a different place come the end of the year. Two major risk events threaten to make or break the medium term prospects for the Buck – out leading Dollar analyst takes a look below…

US interest rates were stuck at a banding of between 0.00% and 0.25% for the best part of a decade until the Federal Reserve raised them to a still relatively lowly 0.25% - 0.50% in December of last year.

US Inflation Data Boosts Rate Bets and Sends GBP USD Currency Pair Lower

But with the latest US data supporting the case in favour of higher interest rates, the Pound US Dollar (GBP USD) exchange rate fell.

Data published this afternoon has stirred investors to begin to price-in a second rate hike in the Fed’s current policy tightening cycle. Official figures released a short time ago revealed that America’s Consumer Price Index (CPI) – the headline measure of the rate of inflation Stateside – increased from 0.8% in July to a higher-than-anticipated 1.1% last month.

The upshot saw futures markets increase the implied percentage probability that the Fed will hike its leading interest rate before year-end. As of yesterday, the money markets were seeing a 52.6% chance that the Fed would maintain the US cost of borrowing at its current level into next year, but in the wake of the August inflation numbers the same Markets now predict a 51.2% likelihood that interest rates will be higher Stateside by Christmas.

Will Victory for Trump Send the Pound Sterling to US Dollar Exchange Rate Lower?

The other major determinant of the performance of the Pound Sterling to US Dollar (GBP USD) exchange rate moving forward will be the US Presidential Election which takes place in the first week of November. Controversial Republican Candidate Donald J. Trump is considered a volatile character and analysts forecast that the Dollar may encounter a sharp bout of selling pressure in the event of a victory for him.

Until last week, futures markets were pointing to a relatively lowly 20% chance that Trump would prevail, but footage of his rival Hillary Clinton apparently collapsing at an 11th September memorial service from what she later termed ‘a cough which turned into pneumonia’ have seen Trump’s chances increase to 40% according to the money markets.

A Trump victory would be likely to see the Fed backburner its plans for a rate hike this year, heaping further pressure on the Buck and potentially sending the GBP USD exchange rate back up towards the 1.5000 GBP USD level which it touched off on the night of the UK EU Referendum on 23rd June.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Currency Predictions Daily Currency Updates