Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
Market Specialist
The UK general election on July 4, 2024, saw a landslide victory for the Labour Party, ending 14 years of Conservative rule. Markets are optimistic that the Labour’s Party’s win could reduce political and economic uncertainty, potentially strengthening the sterling through better U.K economic conditions and greater political stability. Meanwhile, the USD has weakened due to cooling US labour market data last Friday, suggesting the Fed could start cutting rates soon. The Bank of England has not yet given clear indications of its rate cuts, but the first cut is widely expected in August. GBPUSD is currently trading steadily above 1.28.
Sterling's bullish run in H1 came on the back of improving economic momentum. Political stability has given further room to sterling to extend its dominance over other G10 currencies, especially as it comes in a sharp contrast to the unstable political developments in other parts of Europe. Any downside in the US dollar will continue to be a tailwind for the procyclical British pound.
There is a risk that Bank of England MPC members will start to signal a rate cuts if services inflation continues to soften. This could create some downside pressures on sterling, but BOE rate cut cycle is unlikely to remain any more aggressive than the Fed, and hence relative weakness in sterling should remain contained.
Buy Call/Sell Put for 1 month
Buy Call/Sell Call/Sell Put for 1 month
Scenario Analysis comparing pay-offs of Buy Spot vs Sell Put vs Collar vs Seagull for 1 month for a notional value of GBP 100k
Buy Call/Sell Put for 3 months
Buy Call/Sell Call/Sell Put for 3 months
Scenario Analysis comparing pay-offs of Buy Spot vs Sell Put vs Collar vs Seagull for 3 months for a notional value of GBP 100K
Buy Put/Sell Call for 1 month
Buy Put/Sell Put/Sell Call for 1 month
Scenario Analysis comparing pay-offs of Sell Spot vs Sell Call vs Collar vs Seagull for 1 month for a notional value of GBP 100k
Buy Put/Sell Call for 3 months
Buy Put/Sell Put/Sell Call for 3 months
Scenario Analysis comparing pay-offs of Sell Spot vs Sell Call vs Collar vs Seagull for 3 months for a notional value of GBP 100k
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