By Samuel Indyk
LONDON(Reuters) – The British pound was on track for its biggest one-day drop against the dollar since March 2023 as the U.S. currency soared after Donald Trump was elected president.
The election result sent the dollar surging against a basket of currencies, including the pound, as Trump’s expected expansionary fiscal policy and imposition of U.S. import tariffs are expected to drive inflation higher.
The Republican Party also won control of the Senate and made gains in the House. A “Red Sweep” where the party controls the presidency, Senate and House would put the Republicans in a stronger position to dictate policy.
“The inflationary nature of Trump policies is dollar supportive, and short-term market reactions reflect this,” said Joe Tuckey, head of FX analysis at Argentex Group.
Sterling was last down 1.2% against the dollar at $1.28955, its biggest one-day fall since March 2023.
The dollar index, which measures the currency against six others including the pound, was up 1.6% at 104.97.
It has been a busy two weeks for pound traders, starting with last week’s budget, the first under the new Labour government.
That budget contained huge tax rises, spending increases and higher levels of borrowing, causing a wobble in Britain’s bond markets that sent yields shooting to multi-month highs.
Britain’s 10-year gilt yield was down 2 basis points on Wednesday after earlier touching its highest since November 2023.
Attention was now turning to the monetary policy announcement from the Bank of England on Thursday, where the market expects a 25 basis point rate cut.
Danske Bank FX analyst Kirstine Kundby-Nielsen expects the pound to outperform the euro, as the BoE looks set to follow a slower easing path than the European Central Bank.
“You’re seeing more growth outperformance in the UK and you’re seeing the Bank of England being a lot more gradual in how they want to approach monetary easing,” Danske Bank’s Kundby-Nielsen said.
“I continue to expect the pound to strengthen against the euro.”
The pound was last up around 0.5%, at 83.38 pence per euro.
(Reporting by Samuel Indyk; Editing by Alex Richardson)
