Trump’s Hopes for Close UK-US Relations Boost GBP

Sterling surprised once again on Thursday afternoon, making one of its best rallies in months as market readjustment to Donald Trump’s shocking election win left the Pound in high demand.

During Thursday’s American session, Trump discussed the future of UK-US relations with UK Prime Minister Theresa May. Trump described Britain as a ‘friend’ and indicated that the UK would be high up the priority list for a trade deal under the Trump administration. While this sent the Pound surging, some analysts have warned that Trump’s hope of keeping America away from globalisation may not mesh with Downing Street.

Demand for the Pound has also risen due to higher government bond yields. Trump has indicated he will stimulate the US economy through spending increases, which would in turn boost global inflation. As a result, UK Gilts also rose, increasing Pound appeal.

Against many currencies, the Pound has recovered to levels not seen since before the ‘Pound flash crash’ over a month ago.

US Dollar (USD)

The US Dollar performed well during Thursday’s session, but was unable to hold the surging Pound at bay as UK investors indulged in hopes of stronger UK-US trade relations.

Markets continued recovering from Wednesday’s shock USD selloff throughout Thursday, with investors returning to the US Dollar from other ‘safe haven’ currencies amid hopes of a Federal Reserve interest rate hike in December. Bets of a rate hike hold at a strong 76%. While Trump’s election win was initially seen as bearish for markets and Fed rate hike bets, the lack of protectionist statements since his win as well as his hawkish hopes for stimulating the US economy have allowed bets to stay high.

US markets were also cheered by news that Trump was unlikely to interfere with the Federal Reserve despite criticising its independence and Chairwoman Janet Yellen in the past.

Euro (EUR)

The Pound to Euro exchange rate surged by over a cent and a half during Thursday’s trade session to hit its highest value in over a month. Concerns that populism and protectionism would rise in Eurozone countries after this year’s Trump and Brexit events weighed on demand for the shared currency.

The fear is that the Brexit and Trump wins could boost the appeal of populist politics elsewhere, including many nations in Europe. While the Brexit vote hurt Sterling considerably, the mere possibility of a Eurozone nation dropping out of the single currency bloc in the long-term was enough to cause investors to stay away from the Euro on Thursday.

Australian Dollar (AUD)

The Pound to Australian Dollar exchange rate briefly weakened on Thursday morning as the ‘Aussie’ rebounded from its Wednesday losses, but by the end of the day the ‘Aussie’s attempts were in vain and GBP AUD had gained over two cents in value. The Pound’s bullishness continued on Friday morning, leaving it one of the best performing major currencies so far this week.

Commodity bloc economies like Australia could be among those to suffer the most from a protectionist USA, so if Trump indicates that his most anti-trade policies are still in the pipeline the Australian Dollar could continue plunging despite optimistic news for commodity prices this week.

New Zealand Dollar (NZD)

The Pound to New Zealand Dollar exchange rate has solidly emerged from the record-low values seen in the last few weeks, reaching a monthly high on Friday morning thanks to hopes of stronger ties between the UK and US as well as fears of weaker ties between the US and other trade-heavy countries like New Zealand.

The ‘Kiwi’ has also been weakened this week by the Reserve Bank of New Zealand’s (RBNZ) decision to cut NZ interest rates during Thursday’s Asian session.

Canadian Dollar (CAD)

The Pound to Canadian Dollar exchange rate soared in a massive three-cent-rally on Thursday and looked to continue its advance on Friday as bullish UK markets saw the Pound easily take advantage of a weak Canadian Dollar.

Risk-correlated currencies like the ‘Loonie’ continued to face the worst trade since Trump’s election. The close trade relationship between the US and Canada left the Canadian Dollar in a worse position than many peers, due to fears that these trade deals could soon be a thing of the past. Bets of further monetary stimulus from the Bank of Canada (BOC) have also left the Canadian Dollar far weaker.