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.

In Thursday’s US economic calendar, investors will focus on Fed Chair Jerome Powell’s speech, Initial Jobless Claims data for the week ending November 8, and the Producer Price Index (PPI) data for October for fresh guidance on interest rates.

Daily digest market movers: Pound Sterling to be influenced by BoE Bailey’s speech

• The Pound Sterling exhibits a mixed performance against its major peers and is notably weak against the US Dollar on Thursday ahead of Bank of England (BoE) Governor Andrew Bailey’s speech at 21:00 GMT. Bailey is expected to provide cues about whether the BoE will cut interest rates again in December and the potential consequences of Trump’s policies on the United Kingdom (UK) economy.
• In his last interaction with the media in the press conference after the decision to reduce interest rates by 25 bps to 4.75% last week, Bailey said that the policy-easing cycle would be more gradual as Labour’s first budget could increase inflationary pressures and economic growth.
• Investors will also pay close attention to the outlook of inflation in the services sector, a closely tracked indicator by BoE officials for decision-making on interest rates. The Service inflation is expected to remain sticky as the Average Earnings data rose more than expected in the three months ending September. 
• Meanwhile, BoE external policy member Catherine Mann said in a panel discussion organized by BNP Paribas on Wednesday that the progress in the disinflation process could slow down as energy prices are more likely to rise than fall and highlighted inflation in the service sector as "pretty sticky," Bloomberg reported. Investors should note that Mann is an outspoken hawk who voted to leave interest rates unchanged at 5% in last week’s monetary policy meeting.

Technical Analysis: Pound Sterling tests August’s low

The Pound Sterling extends its losing streak against the US Dollar for the fifth trading day on Thursday and declines to near the August low of 1.2665 after establishing below the 200-day Exponential Moving Average (EMA), which trades around 1.2855.

A bearish momentum has kicked in with the 14-day Relative Strength Index (RSI) sustaining below 40.00.

Looking down, the round-level support of 1.2600 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the 200-day EMA