Donald Trump Upset sees British Pound Jump vs US Dollar, Fall Against Euro as Market Chaos is Triggered

There is now a 95% chance of a Donald Trump victory in the US presidential elections - a surprise that has understandably triggered some notable moves in financial markets.

• Pound to Euro exchange rate spot reference: 1.1125
• Pound to Dollar exchange rate spot reference: 1.2535

Donald Trump has snatched some key swing states in the US presidential elections with the taking of Ohio, North Carolina and Florida seeing the candidate's chances of taking the keys to the Whitehouse rise to almost 95%.

The US Dollar was always going to be in the firing line of a Trump victory as the odds of a December interest rate rise at the US Federal Reserve falling rapidly as markets took stock of the new facts on the ground.

Yellen and her team will likely opt to maintain the status quo as financial markets adjust to the prospect of a radical set of economic policy announcements from a President Trump.

Pound Sterling has taken back all of Monday's losses while the Euro is outperforming both the Dollar and Sterling.

High-yielding currencies such as the Rand, Australian Dollar and New Zealand Dollar are all feeling the heat.

"With Trump’s chances growing, the European foreign exchange markets outperform – even the CEE currencies like PLN, CZK, HUF – are nearly 2% up against the USD in early trading. The Scandies are up 0.5% vs USD. The GBP, too, gained significantly, up 1% against the USD so far tonight," says Johnny Bo Jakobsen at Nordea Markets.

However, analyst Trevor Charsley at AFEX in London says the moves are not guaranteed.

"Certainly like Brexit, the markets will see an immediate hit if Mr. Trump moves into the White House but could well recover in the medium term, once the U.S. internal checks and balances start to restrict Trump’s presidency."

Latest Pound/Euro Exchange Rates

	Live: 1.1449▲ + 0.05% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.106 - 1.1106
**Independent Specialist	1.1289 - 1.1335 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The Kind of Moves to Expect

Ahead of the release of US presidential election results we saw the US Dollar benefit as markets price in a Clinton victory.

The 'continuity candidate's' victory would see the US Fed pull the trigger on a rate rise in December with markets pushing this scenario as high as 85% on polling day.

Misplaced confidence indeed.

So what could subsequent currency movements look like following a confirmation of a Clinton victory?

"Monday’s activity provided some strong clues on potential FX price action were Clinton to win the Presidency. The market response strongly suggests that while a Clinton victory will play moderately USD positive versus G4 currencies, favored EM long carry trades financed by the USD and the other majors will continue to do well," says Alan Ruskin at Deutsche Bank.

A Clinton victory is therefore not entirely priced in by the market and such an outcome could benefit the currency against the Euro while inviting more losses against the Dollar.

Ruskin says if Clinton is elected the next President, in the 24 hours following the election he would broadly anticipate a repeat of the percentage changes achieved on Monday.

Follow-through beyond that will likely prove limited.

Over recent days both the Pound to Euro exchange rate (GBP/EUR) and Pound to Dollar exchange rates (GBP/USD) have undergone something of a resurrection.

Whilst the US Presidential election poses something of a major risk to the recovery, only a Trump win is expected to shake the market in a notable way and on recent form it would appear that Sterling would stand to gain agianst the Dollar and lose against the Euro on such an outcome.

Ruskin believes a Trump victory could see Sterling surge by 3% against the US Dollar.

"On the flip side, a Trump victory would in the initial instance, probably lead to a reversal of Monday’s FX moves , but likely multiplied by a factor of at least two times for G4 currencies, and at least three times for EM and higher beta currencies," says Ruskin.

Latest Pound / US Dollar Exchange Rates

	Live: 1.333▲ + 0.03% 12 Month Best: 1.3789
*Your Bank's Retail Rate	1.2877 - 1.293
**Independent Specialist	1.3144 - 1.3197 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Momentum Favours Extension of Recent GBP Strength

Price charts can be extremely telling when it comes to forecasting upcoming moves, and those of GBP/EUR and GBP/USD have shown a clear break above the trendline which follows the direction of the dominant trend down.

A break above the trendline, according to chart watchers, is a strong sign the downtrend is weakening and a reversal may be on the cards.

Although the GBP/USD has pulled back to 1.2400 on Monday, it remains above the trendline which is now providing it with support:

Not far below at 1.2372, lies the monthly pivot, another source of strength since traders often use it as a level from which to fade the dominant trend.

Ultimately until, these levels are properly broken – indicated by a move below 1.2277 - the short-term uptrend remains intact and therefore likely to extend.

As such a break above the 1.2559 highs would trigger assurances of more upside and probably lead to a continuation up to 1.2700 – over open ground without major technical impediment.

Chart-watcher Karen Jones of lender Commerzbank is more sceptical about the upside potential of the pair following the trendline break:

“GBP/USD took out the 5-month down trendline at 1.2341 last week (following the ruling that the UK government must hold a vote in parliament before triggering Article 50).

“The market has reached the 1.2500 psychological resistance and it is interesting to note that all the daily and intraday charts continue to indicate that this move higher is corrective only and this move should fail here.”

Jones sees the pair as vulnerable to a break below the October 19 highs at 1.2335, which would open the floodgates to a further move down.

Alternatively, it would require a break above 1.2555 to confirm a new uptrend, with an initial target at 1.2798.

Shaun Osborne at Scotiabank is also sceptical:

"Short-term technical patterns look negative for the GBP; the market peaked and reversed from the mid 1.25 area early yesterday and spot retains a heavy undertone at writing, nearing yesterday’s low. We see short-term retracement support at 1.2375 and feel the GBP is vulnerable to a slide back to a 1.22 handle fairly quickly on a break below here."

Pound to Euro Pierces Trendline

The pound to euro pair has also broken above a six-week trendline signalling a bullish reversal in the short-term trend.

GBP/EUR is likely to continue higher, consolidating its break, and a move above the current 1.1295 highs would confirm a continuation up to 1.1400, just below the 50-day MA at 1.1430:

A move above the 50-day MA is likely to be more difficult to achieve since moving averages often provide solid resistance barriers to prices.

The long flash crash bar in early October still seems to punctuate a major low on charts and more upside is favoured.

The generally bullish forecast is supported by analysis from broker Charles Stanley’s Bill McNamara.

“The UK currency has also been recovering relative to the Euro and last week’s 2.9% gain strongly suggests that it found support at its multi-year lows (i.e. at 1.10 or so).

“Its latest price action has also lifted it back above its short-term downtrend and the chart is indicating that there is still room for further near-term upside – although it is unlikely that we have seen the last of the volatility,” notes McNamara.