Pound Sterling Sees Divergent Fortunes Against Euro and Dollar as 'Trump Trade' Extends

File image of Donald Trump. Official White House Photo by Shealah Craighead.


The Trump trade rumbles on; for Pound Sterling, this means a firmer GBP/EUR but a lower GBP/USD.

The Pound plugged fresh multi-week lows against the Dollar on Thursday while it firmed against the key €1.20 level against the Euro. Market action is driven by the ongoing financial market adjustment that follows Donald Trump's win in last week's elections, with his position being solidified by the Republican sweep of both houses of Congress.

It was confirmed on Wednesday evening that Republicans had won at least 218 seats in the 435-member House after a victory in Arizona, a call that came more than a week after polls closed, granting them the majority.

With the trifecta of the Presidency, the Senate and the House of Representatives, there is little standing in the way of Trump's agenda.



Trump knows he has a strong hand, and he has captured financial market attention by appointing controversial figures to top positions in U.S. state mechanisation (Musk, Ramaswamy, Gaetz).

He has also appointed names that are known to be 'hawkish' on international trade (Rubio, Waltz), meaning the tariff agenda will very likely be implemented.

Crucially, the signal is the changes will come quicker than they did in his first presidency and markets are racing to get ahead of this. "In FX, investors appear to be accelerating the 'Trump trade', with the USD strengthening further across the board," says Roberto Mialich, FX Strategist at UniCredit Bank.

"The US dollar continued to make gains. It was difficult to identify a clear reason for this, but it is possible that Trump's announcement that he will choose hardliners for many of the positions is causing further euphoria. This would also make other election announcements more likely, which would lead to higher inflation in the medium term," says Michael Pfister, FX Analyst at Commerzbank.


Investment bank consensus forecasts update: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/EUR. Please request a copy here.


Ongoing developments are proving negative for the Euro, as the Eurozone's exports of manufactured goods to the U.S. are likely to be impacted. The Euro-Dollar exchange rate has erased all its 2024 gains, having retreated to levels last seen in November 2023, at 1.0550.

The Pound to Dollar exchange rate is also under pressure, but to a lesser extent than EUR/USD, falling to August lows at 1.27.

GBP/USD's outperformance of EUR/USD means the Pound to Euro (GBP/EUR) must rise, confirming this as an exchange rate that has benefited from the Trump trade.

GBP/EUR rose to as high as 1.21 on Monday and is in the process of consolidating levels above the key 1.20 level.



The UK is a major exporter of services to the U.S., which don't fall under tariff regimes. If anything, a boost to the U.S. economy from Trump's deregulation and tax cuts could help shore up the UK's economic growth.

By the end of the second quarter of 2024, the UK had exported services worth £129.2BN to the U.S. over the course of the preceding 12 months.


Above: This image from Citibank shows the composition of trade between the U.S. and European countries. The UK's exports of services is notable.


This means services accounted for 68.7% of the UK's exports. These won't fall within the scope of U.S. tariffs, and the value could, in fact, grow if the U.S. economy continues to expand.

"We continue to stay positive on GBP, targeting EUR/GBP at 0.81 in 6M," says Jesper Fjärstedt, Senior Analyst at Danske Bank.

The British Pound looks set to find ongoing support from central bank policy, given the Bank of England is unlikely to quicken the pace it lowers interest rates, noting upside risks to inflation in 2025.

The Bank of England and Office for Budget Responsibility have upgraded UK inflation forecasts following last month's budget, in which Chancellor Rachel Reeves announced a major expansion in government spending.

The Pound can find support against currencies where rates are falling faster (European peers), but it could struggle against currencies where rates also look attractive (the U.S.).

"Going forward, we think that recent events support a continuation of GBP’s relative outperformance in the coming months, but we caution that the end-October price action was a perfect example of GBP’s vulnerability to downside risk," says Elsa Lignos, a currency analyst at Royal Bank of Canada.

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