Trump Win Could Sink Pound to Dollar Conversion to 1.23

What will happen to the dollar if Donald Trump wins, and where will it go if Kamala Harris defies the odds to take the White House? This new analysis shows the implications for the currency markets is significant.

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

The Dollar is rising as the odds of a Donald Trump win on November 04 increase in probability, and analysts say there would be more to come in the weeks following a win.

U.S. betting markets, including Polymarket, Kalshi, and PredictIt have further raised the implied probability of Trump winning to more than 60%.

The rise in expectations for a Trump win is reflected in ongoing U.S. Dollar outperformance, which includes another dip in the Pound to Dollar exchange rate below 1.30.

The Euro-Dollar exchange rate is down half a per cent over the course of the past 24 hours to trade at 1.0827.

"The market has finally focused on a fast-approaching U.S. election, with rising odds in prediction markets of a Trump win serving as the proximate trigger," says Themistoklis Fiotakis, an analyst at Barclays.

Polling suggests the race for the presidency is far tighter than the betting markets suggest, but according to aggregates by Bookmakers Review, betting odds have accurately predicted 77% of the expected candidates winning over the last 35 years.

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

Analysis from Barclays finds that at least 2% of the Dollar's recent advance against the Euro and Pound is due to positioning for the upcoming vote.

As a result, a win by Kamala Harris would see the premium fade as the status quo is maintained, prompting a sharp rally in the likes of Pound-Dollar and Euro-Dollar.

"On a Harris win, we assume the entire c.2% election premium will unwind," says Fiotakis.

On a Trump win, Barclays assumes the market will price in a 60% tariff on China to almost certainty and a 70% probability of a 10% tariff against countries with large trade surpluses with the U.S.

Analysts at Deutsche Bank said last week that a "red sweep" outcome is also increasing in likelihood, where the Republicans gain control of Congress and the White House.

"We see the most bullish dollar outcome as a red sweep and the most bearish dollar outcome on a blue sweep, but the magnitude of the moves is likely larger in the former," says George Saravelos, an analyst at Deutsche Bank.

"We see the dollar rising across all currency pairs in a red sweep," he adds.

Above: There is a notable election premium already evident in the USD says Barclays.

Last week Trump confirmed he has not changed his mind on pursuing a number of policies that are expected to be supportive of the Dollar. In a new interview, Trump dismissed economist warnings that his proposed tariffs would have a negative impact on the economy and raise inflation.

"To me the most beautiful word in the dictionary is 'tariff,'" he said.

The prospective president wants to place a 60% levy on imports from China and a flat 10% duty on the rest of the world.

This would represent a repeat of the tariff-heavy agenda of his first time, and markets are taking notice.

"Remarkably, the dollar's trajectory since the August lows tracks closely the pattern ahead of the 2016 US election," says Fiotakis.

Image courtesy of Barclays.

Dollar exchange rates rose in the wake of Trump's 2016 win, and if history repeats, then a notable rally lies ahead in the coming weeks.

Modelling from Barclays shows the Pound to Dollar exchange rate is forecast to go as low as 1.23 in the event of a Trump win.

For Euro-Dollar, the target is set at 1.03.

However, should Harris win, Euro-Dollar is forecast to recover to 1.11 in the subsequent weeks.

For Pound-Dollar, the recovery would extend to 1.33.