GBP/USD depreciates as Trump trade rallies on exit polls favoring the Republican candidate

GBP/USD loses ground due to increased Trump trade as exit polls favor the Republican Party.
The prediction platforms indicate former President Donald Trump currently holds an edge over Vice President Kamala Harris.
Traders will turn their attention to the interest rate decisions from both the Federal Reserve and the Bank of England on Thursday.

GBP/USD offers its recent gains registered in the previous session, trading around 1.2940 during the Asian hours on Wednesday. The pair depreciates as the US Dollar (USD) gains momentum on strengthening Trump trades as the voting favored Republican candidate Donald Trump in the US presidential election.

Polling data indicate a close race between Donald Trump and Kamala Harris, with Trump currently holding an edge. On Kalshi, Trump shows a strong 57% to 43% lead over Harris, while on Polymarket, the gap is slightly wider, with Trump at 60.7% and Harris at 39.5%. These figures reflect growing support for Trump as election day approaches, but the race remains competitive.

Early exit polls in Georgia, one of the first states with available data, indicate a tilt toward Republican presidential candidate Donald Trump. With 16 electoral votes at stake, preliminary results suggest Trump has about a 10% lead over Democratic candidate Kamala Harris, although this estimate is based on less than 1% of votes counted, according to The Washington Post.

Preliminary results from the Pennsylvania exit polls show a lead for Harris, according to CBC News. With approximately 8% of the expected votes counted, Kamala has secured a 71% majority. The state has 19 electoral votes at stake.

Follow our live coverage: Trump or Harris? Who will be the 47th President of the US and how will markets react?

Traders are closely watching the Federal Reserve's interest rate decision set for Thursday, with a widespread expectation of a 25 basis point cut. The CME FedWatch Tool shows a 96.4% probability of a quarter-point rate reduction at the Fed's November meeting, reflecting strong market anticipation of a modest cut.

On the GBP front, the Bank of England's (BoE) upcoming rate decision, also scheduled for Thursday, is expected to result in another quarter-point reduction. The BoE’s Monetary Policy Committee is anticipated to vote 7-2 in favor of lowering the main reference rate to 4.75% from the current 5.0%.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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