As Donald Trump declared victory at the US 2024 Election, the British Pound reportedly plummeted against the US dollar.
The pound plunged to near 1.2850 against the US Dollar in the early hours on November 6th, meanwhile the dollar surged to a four-month high.
Insider examines the impact of Trump’s victory on the pound and future international investment with the UK and Europe.
The impact of Trump’s victory
FXStreet says that Trump’s victory is visible in “risk-sensitive” currencies, which are significantly down against the US dollar.
On the other side of the coin, the US Dollar Index, which measures the greenback’s strength against six major currencies, posted the US dollar hitting a four-month high at about 105.30. This is the dollar’s biggest gain against major currencies since 2020.
Global markets reacted positively to this, says wealth management firm Evelyn Partners. It said that with S&P 500 futures climbing higher and treasury bonds tumbling, the markets are “sending a clear signal that investors expect a second Trump administration to mirror the first, meaning tax cuts, trade tariffs and deregulation are back on the agenda.”
The wealth management company says that these moves could simultaneously catalyse economic growth, company earnings and inflation.
International investment
In a Hargreaves Lansdown news update post Election results, Susannah Streeter, head of money and markets commented on the dollar’s surge against the pound: “Weaker sterling can help boost the revenues of international companies with strong overseas earnings.
“Some investors may also be hopeful that the expected lighter touch regulation and tax cuts from a new Trump term will support growth for the US economy.
“For now, concerns about the longer-term impact of fresh inflationary tariffs on the world economy are being put on the back burner.”
Trump’s tariff proposals
Trump has vowed to increase tariffs by another 10 per cent on most foreign products and 60 per cent on goods from China.
Streeter said of this: “Even if such heavy tariffs are not swifty imposed, the threat of them is likely to make Chinese-US relations a lot more uncertain in the coming years and could hamper China’s economic recovery even further.”
However, Streeter adds that Trump’s “isolationist approach” might make containing China over the medium and longer term more challenging, given that Trump “isn’t likely to want to build alliances in the same way as we saw under Biden and this splintering effect may enable China to form new partnerships in a fractured world.”
She also notes that there are risks that the proposed higher tariffs will mean that inflationary pressures in the US will be exported.
She said: “As the dollar rises, countries which import commodities priced in dollars may also see price increases, which will either need to be absorbed by companies or passed onto customers.
“If other countries started to feel the onerous effects of higher tariffs on their economies, there may be more demand for the dollar as it is considered to be a safe haven.
“This could be counter-productive to efforts to increase exports from the US as the stronger dollar is likely to make products of US exporters less competitive globally.
Streeter adds that for Europe, an increase in tariffs imposed on exports is likely to cause “some pain”. However, she adds: “given the dollar is also strengthening and is likely to be beefed up even further due to inflationary pressures, the currency changes may help British and European firms maintain their competitiveness.”
Bank of England’s Base Rate
Compared to the US dollar, the British pound “exhibits a mixed performance compared to its major peers on Wednesday,” says FXStreet. It adds that the British currency is “expected to trade sideways,” with investors focusing on the Bank of England’s interest rate decision on November 7th.
Economists predict that Bank of England’s (BoE) interest rate will be cut to 4.75 per cent and the Monetary Policy Committees meeting on Thursday.
In its last meeting on September 19th, the base rate was held at 5 per cent after being cut in August for the first time since 2023.
The cut followed inflation falling to the BoE 2 per cent target for the first time since 2021, to 1.7 per cent.
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