GBP has surged to a two-year high against the Euro following Donald Trump’s election victory and the Republican Party’s control of Congress. This political shift has led markets to believe that Trump's proposed tariffs could impact the Eurozone more severely than the UK, given the Eurozone’s goods export reliance versus the UK’s service-oriented economy, which is less tariff-sensitive. While much of the market’s response to Trump’s win is priced in, further gains for the Pound remain possible, particularly if his policies prove more negotiable than anticipated.
The GBP/EUR exchange rate remains technically primed for more upside, with support above the nine-day and 50-day moving averages. The Relative Strength Index (RSI) at 60 suggests potential for further growth, with a target range of 1.2120–1.2190 by year-end. The upcoming UK wage and employment data will be pivotal for the Bank of England’s rate decisions, as markets anticipate a slight rise in unemployment and a modest dip in earnings, which could support the case for a rate cut in December if inflationary pressures allow.
Meanwhile, the GBP/USD exchange rate faces pressure as the Dollar strengthens on Trump's win and an increasingly USD-supportive economic agenda. Despite this, the Pound has shown resilience, consolidating between 1.30 and 1.2834, with solid technical support near the 50% Fibonacci retracement at 1.2868 and the 200-day moving average at 1.2816. U.S. inflation data, a key focus for markets this week, could further support the Dollar if it surprises to the upside, while a softer reading might revive expectations for future Fed rate cuts. In the UK, Chancellor Rachel Reeves’ budget, with increased employer taxes, complicates the Bank of England’s options, with Bank Governor Andrew Bailey’s comments expected to shed light on how the Bank plans to balance growth and inflation amid recent policy shifts.
