Pound Sterling falls further against USD on Trump's clean sweep

The Pound Sterling posts a fresh over four-month low near 1.2660 against the US Dollar on confirmation that Trump will control both US houses.

An expected acceleration in US inflation keeps the Fed on course to cut interest rates in December.

Investors await Fed Powell and BoE Bailey’s speeches in the North American session.

The Pound Sterling (GBP) refreshes over a four-month low below the round level of 1.2700 against the US Dollar (USD) in Thursday’s London session. The GBP/USD pair extends its downside for the fifth consecutive trading day as the US Dollar (USD) continues to gain on optimism over the United States (US) economic outlook, fuelled by headlines that President-elected Donald Trump and the Republican Party will control both the US Senate and the House of Representatives, according to the Associated Press.

This “clean sweep” will allow Donald Trump to execute his protectionist and expansionary policies without interruption. Trump vowed to raise import tariffs by 10% universally and lower taxes on corporations and workers in his election campaign.

Market participants believe that lower taxes and higher import tariffs will result in a high-inflation environment, a scenario that would limit the Federal Reserve’s (Fed) potential to cut interest rates aggressively. Markets currently highly anticipate a 25 basis points (bps) interest rate cut that will push borrowing rates lower to 4.25%-4.50% in December, according to the CME FedWatch tool. Market expectations for the Fed to cut interest rates again next month strengthened after the October Consumer Price Index (CPI) data released on Wednesday showed that inflationary pressures rose in line with estimates.