The pound soared to a five-week high thanks to the Trump win in the US presidential election. In fact, the pound started rising as soon as the FBI said it was reopening its investigation into Hillary Clinton’s emails ten days before election day. Sterling has recorded its best fortnight on a trade-weighted basis in over seven years, as currency traders turned their focus away from Brexit and towards political problems in other parts of the world.
Since Donald Trump shocked the world last Tuesday by winning the US presidential election, the British currency has been the top performer of any hard currency globally, even against the US dollar, which is also heading for a record week. Today’s hard currencies are the US dollar, pound sterling, euro, Japanese Yen, and Swiss franc.
Trump’s victory has also raised hopes that Britain may find it easier to successfully arrange a free trade deal with the United States after leaving the European Union.
When Britons voted for Brexit the pound fell sharply. When news about Trump’s election win became evident, the British currency rose.
Pound tops $1.26
For the first time since 6th October, the pound surpassed the $1.26 mark. Just one month ago, on 7th October, sterling plummeted by over 10% within minutes. Be the end of trading on Friday, it had risen by 0.4% on the day. Against the euro, sterling was 0.8% up on Friday, trading at 86.13, after hitting a seven-week high.
This will be welcome news for British businesses that rely heavily on imported goods, as well as holidaymakers purchasing euros and other foreign currencies.
The pound experienced a further slight boost after construction figures were published, which were not as dire as experts had expected.
Pound rises on US trade deal hopes
As soon as it became clear that Britons had voted to leave the European Union on 23rd June this year, the pound went into free-fall. Within a day it had declined by more than 10% against the dollar and euro. Since then, it has not managed to recover – in fact, it continued declining.
With Trump winning the general election in the United States, a possible lifeline has suddenly emerged on the horizon for the UK’s post-Brexit economy – a trade deal with America.
President Barack Obama had told the British electorate that the UK would be ‘in the back of the queue’ regarding a trade deal if the country voted to leave the EU. Donald Trump promised that if he became president, Britain would be in the front of the queue.
President Elect Trump has indicated he would like to continue with the US-UK special relationship.
Regarding the US presidential election result, Rupert Lee-Browne, Chief Executive of currency at Caxton FX, told BBC News:
“This is definitely a rebound after some very positive comments from President-elect Trump. He’s indicated he wants America and the UK to continue with the special relationship, and that has lifted spirits in the currency market.”
According to City experts, Trump’s election win has put Brexit on the back burner, allowing sterling to move upwards. The shift of focus, such as worries about political stability in Europe, has given the British currency a much-needed respite.
Expectations of higher inflation in the UK means that interest rates are probably going to increase, making the pound even more attractive for investors.
However, despite its recent recovery, the pound still has a long way to go in order to return to its value against the dollar one year ago – $1.52.
Video – Pound wins on Trump victory
In this Bloomberg video, Richard Jones explains what has happened to the pound sterling since Donald Trump won the presidential election.