Pound (GBP) to US Dollar (USD) Falls as Traders Perceive Sterling as Overbought

Modified: Monday, 14 November 2016 14:35 BST - Written by Ben Hughes

STORY LINK Pound (GBP) to US Dollar (USD) Falls as Traders Perceive Sterling as Overbought

The Pound to US Dollar exchange rate advanced last week, hitting its best levels since the first week of October. Sterling was one of the only currencies to end last week’s session higher against the otherwise-bullish US Dollar.

On Friday, GBP/USD peaked at a one-month-high of 1.2661. While the pair was unable to hold this high, it had gained over half a cent throughout the course of the week. GBP/USD plunged on Monday.

Pound (GBP) Weakens as Investors Readjust on Last Week’s Rally

To the surprise of many analysts last week, markets chose to be relatively bullish once they had digested the reality of Donald Trump being President-elect.

This bullishness had affected the Pound even more than the US Dollar by the end of the week.

Speculation that protectionism had risen not just in Britain but in other major economies relieved some of the political pressure on the Pound. Comments from Trump and his transition team about the UK-US relationship being a high priority for his Presidency also bolstered Sterling demand.

However, on Monday markets perceived the Pound as having been overbought. Sterling fell from its highs as last week’s overly-bullish GBP sentiment faded.

US Dollar (USD) Remains Bullish on Trump Economics Optimism

The US Dollar defied expectations last week. Expected by many to plunge if Trump was elected, the reality saw the ‘Greenback’ slump only briefly before surging as investor confidence was restored by Trump’s surprisingly moderate acceptance speech.

The lack of his most controversial proposals in his acceptance speech led to markets rallying in hopes that Trump would dial back his protectionist stance and instead focus on his short-term economic boost plans.

Trump’s plans for high government spending, lower taxes and bringing manufacturing jobs back into the country have led to speculation that inflation and growth could surge in the next year, which has also increased Federal Reserve interest rate hike bets.

GBP/USD Forecast: Trump Bullishness Overblown?

It’s still been less than a week since Trump became the US President-elect, but the news has already had a direct effect on the world’s foreign exchange markets.

Investors have rallied and continued to rally on speculation of a pragmatic President Trump, but the reality of a President Trump is still unclear. This has led some analysts to suggest that the current market movement may be too optimistic.

The market-wide expectation for US economic stimulus has led to volatility, meaning US Dollar trade could continue fluctuate in the coming weeks rather than hold a solid rally – depending on comments from Trump or his transition team.

If Trump hints that his stance on trade remains as protectionist as ever, the US Dollar could plunge and leave the Pound stronger.

If not, markets will continue to hope for Trump to wind back on his anti-trade stances and focus on the prospect of short-term economic stimulus. This is also likely to lead to more Federal Reserve interest rate hikes in the coming year – always a plus for the ‘Greenback’.

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TAGS: Pound Dollar Forecasts