GBP-EUR surges on US election

10 November, 2016

Rob Bastin

In a momentous 24 hours, Donald Trump defied all expectations with yet another shock for 2016, by beating Hillary Clinton to the main seat in the White House. As the world begins to digest this appointment, perhaps what has been even more of a surprise is the reaction on the currency markets during yesterday’s trading. Many analysts had been preparing for a huge depreciation in the US Dollar should Trump be appointed, given the vast uncertainty surrounding his appointment to both US politics and their economy as a whole.

In the early hours of Wednesday morning this was indeed the reaction with GBP/USD up by nearly 2 cents at its peak, and GBP/EUR down over a cent, both testing significant levels of resistance and support respectively. The biggest moves were seen against the Japanese Yen where a 5% drop for the greenback was seen before pairing these losses by close of play, and against the Mexican Peso with the US Dollar up nearly 15% at one point. Trump then delivered his acceptance speech, which resulted in a significant turning point for the US Dollar as he demonstrated a far more balanced, humble, and politically correct speech that seemingly assured markets that we may just see a different Donald Trump in the White House than we have seen during his campaign to get there. After all this would not be the first time a ‘politician’ has made false claims to get their desired result. As the day developed the US Dollar continued to recover its losses and in fact finished the day in a stronger position against many major currencies, in particular the Euro where it surged over 3 cents from its overnight low point, a movement that will be positive news for many of our property buyers as the weaker Euro also caused the big surprise of the day with GBP/EUR rallying an equal 3 cents to a 5 week high, the biggest intraday gain since the referendum.

Whilst the markets seem to have been buoyed by Trump’s first speech as President elect, many unknowns and uncertainties lie ahead for the US and their currency. The markets have already halved expectations of a rate hike in December for example which is the most immediate focus from a currency perspective. Trump is also seen to be an extremely unpredictable character who has the potential to make rash and damaging comments at any time. It is therefore still very unclear what the longer time movement of the US Dollar will be, and therefore the impact it will have on GBP/EUR, GBP/USD and EUR/USD exchange rates. GBP/EUR gains yesterday come against the trend so it is extremely unlikely that this will be the catalyst of better things to come, given the backdrop of Brexit negotiations which will inevitably come back into focus before long.

With no major data releases left this week, we expect another volatile couple of days as the dust slowly settles and the markets continue to speculate on how Trump’s victory will effect both the US, and Global economy in the months and years ahead. For more information on how this could impact your currency requirement, contact your broker today.