With Donald Trump having won the US election 2016, has the US just experienced its very own ‘Brexit’ moment? The implications of prolonged market uncertainty could drastically alter the trajectory of USD GBP long term exchange rate forecasts.
Trump Victory Holds Downside Risks for USD GBP Exchange Rate Forecasts
The initial volatility seen after it became clear Trump had taken the White House subsided. USD GBP exchange rate losses diminished, although the US Dollar Pound remained in bearish territory. The initial source of support was – surprisingly – Trump himself. The Republican’s victory speech was uncharacteristically gracious, suggesting that perhaps Trump won’t bring his caustic campaigning behaviour into his role as President.
Trump has plenty of time to build on, or undermine, these hopes; there are still over two months before Barack Obama officially steps down and Trump becomes President. Therefore, further displays of what the markets consider to be appropriate Presidential behaviour will support USD GBP long term exchange rate forecasts.
Investors will be particularly keen to see if his policies, as well as his behaviour, have been tempered by his victory. If not, the USD GBP exchange rate is likely to plummet. As Barings’ Director of Asset Allocation Research Christopher Mahon explains;
‘His most well-known campaign rhetoric involves building a wall between the US and Mexico, increasing deportations and tearing up NAFTA. Outside of North America, a tougher stance on China via the introduction of tariffs and duties could significantly impact emerging markets. Trade deals with the EU and Japan may also be at risk.’
USD losses could be curbed heading into 2017, however, by developments surrounding the UK’s move to quit the European Union. The government is appealing the recent High Court decision to prevent it activating Article 50 without Parliamentary approval in December. Should the appeal be upheld, the Pound will collapse, helping the US Dollar to mitigate its decline.
Interbank USD GBP Long Term Exchange Rate Forecasts
USD GBP relative strength indicators are still trading around the neutral 50 mark, although with a slight downwards trajectory. Both the long term and short term moving averages (MA) have been on the decline since the end of October, but the fact the long term average is on top suggests that USD GBP long term exchange rate forecasts should be tilted to the downside.
At the time of writing, the US Dollar Pound (USD GBP) exchange rate was trading in the region of 0.80, while the Pound US Dollar (GBP USD) exchange rate trended just above 1.24.
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