Trump's trade continues. For the pound, this means that GBP/EUR is strengthening, but GBP/USD is declining.

On Thursday, the GBP/USD hit a several week low, while the euro remained at the key level of 1.20. After Trump's victory in last week's election, the sustained financial market correction drove market trends, and the Republican Party swept through both houses of Congress to consolidate his position.

Trump has appointed well-known "hawks" in international trade, which means the tariff agenda is likely to be implemented.

It is crucial that this signal indicates that these changes will occur faster than during his first presidential term. Roberto Miaolich, foreign exchange strategist at Yuxin Bank, said, "In terms of foreign exchange, as the US dollar continues to strengthen comprehensively, investors seem to be accelerating the 'Trump trade'

Michael Pfister, a foreign exchange analyst at Deutsche Bank, said, "The US dollar continues to rise. It is difficult to find a clear reason, but Trump's announcement that he will choose hardliners to hold many positions may cause further excitement. This will also make other election announcements more optimistic. This is likely to lead to an increase in mid-term inflation

It has been proven that the continued development of the situation is unfavorable for the euro, as the eurozone's exports of manufactured goods to the United States may be affected. The euro against the US dollar has fallen to around 1.0540 levels in November 2023, wiping out all gains from 2024.

The pound against the dollar is also facing pressure, but to a lesser extent than the euro against the dollar, falling below the August low of 1.27.

The performance of the pound against the dollar is better than that of the euro against the dollar, which means that the pound against the euro must rise, confirming that this exchange rate benefits from Trump's trade.

The UK is a major exporter of services to the US, and the US is not bound by the tariff system. If there is any difference, it is that Trump's relaxation of regulations and tax cuts may help boost the US economy and support economic growth in the UK.

As of the end of Q2 2024, the UK has exported services worth £ 129.2 billion to the US in the past 12 months. This means that the service industry accounts for 68.7% of UK exports. These are not within the scope of US tariffs, in fact, their value may increase if the US economy continues to expand.

Jesper Fjarstedt, senior analyst at Danske Bank, said, "We continue to be bullish on the pound and predict that the euro will fall to 0.81 against the pound within 6 months (i.e. a drop of about 210 points from the current level)

Given that the Bank of England is unlikely to accelerate the pace of interest rate cuts and points out the upward risk of inflation in 2025, it appears that the pound will receive sustained support from central bank policies.

The Bank of England and the Office for Budget Responsibility raised their UK inflation forecasts after last month's budget announcement, with Chancellor of the Exchequer Reeves announcing a significant expansion of government spending in the budget.

The pound can receive support against currencies with rapidly declining interest rates (European currencies), but currencies with attractive exchange rates (United States currencies) may face difficulties.

Looking ahead, we believe recent events support the pound's continued relatively strong performance in the coming months, but we warn that the price trend at the end of October is a perfect example of the pound's susceptibility to downside risks, "said Elsa Lignos, currency analyst at Royal Bank of Canada

Daily chart of GBP/USD