GBPUSD is rebounding towards the 50-period SMA after it has experienced a decline of over 1%, falling below $1.29, as a robust dollar gained traction following Donald Trump’s victory in the US presidential election for a second term.This result has reignited interest in “Trump trades”, with market participants speculating that the former president’s proposals to increase tariffs and reduce corporate taxes could lead to heightened inflation and sustained high interest rates.Concurrently, the Bank of England is anticipated to reduce interest rates by a quarter of a percentage point on Thursday.
Nevertheless, investors now foresee fewer rate reductions in the upcoming year compared to the expectations that existed before last week’s budget announcement.
The Office for Budget Responsibility has recently adjusted its inflation forecast for 2025, raising it to an average of 2.6%, up from the 1.5% predicted in March.This new estimate closely aligns with the Bank of England’s forecast from August, which anticipates inflation rates of 2.4% in one year, 1.7% in two years, and 1.5% in three years.As the market reacts to these developments…
…the interplay between fiscal policy and inflation expectations will be crucial in shaping economic outlooks in the near future.
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