Pound sterling value: What will happen if Donald Trump wins the election?

Traders are likely to focus on the prospect of another interest rate rise by the American central bank, possibly as soon as next month, if Clinton wins

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The pound has been suffering against the dollar ever since the Brexit vote in June.

It is trading close to a 31-year low versus the greenback.

Holidaymakers are already feeling the pinch and a wave of inflation of goods prices is expected to break over households soon.

But now we have a new potential shock looming.

How will the result of the US presidential election on Wednesday night impact on the pound’s value?

We look at the two scenarios below.

Hillary Clinton wins…

Democratic presidential candidate Hillary Clinton (AP)

The dollar is expected by analysts and traders to strengthen if Clinton prevails and becomes the first female US President.

This is because she is, for good or ill, much more of a known quantity in economic terms than Trump.

Traders are likely to focus on the prospect of another interest rate rise by the American central bank, possibly as soon as next month.

So (absent any major new news on Brexit tomorrow) the pound is likely to fall further against the dollar in the event of a Clinton victory.

Donald Trump wins…

Donald Trump attends a campaign event in Hershey, Pennsylvania (Reuters)

Against the pound and other rich world currencies the dollar is expected to slump if Trump prevails.

This is because America will have taken a leap into the economic dark by choosing such an unconventional, inexperienced, extreme and inherently unpredictable new President.

Such shifts do not historically tend to boost the relative value of currencies.

We saw something similar with the pound in the Brexit vote, when it sank 10 per cent in a single night against the dollar and euro, driven down by uncertainty about the UK's economic future.

A Trump win is also likely to damage confidence in other US financial asset markets, something that will make it less likely the Federal Reserve will feel able to increase interest rates in December.

Thus a key support for the dollar against the pound will be removed.

So if it looks as if Trump is heading to the White House, expect the pound to rise, possibly quite dramatically, against the dollar.

Yet serious currency volatility is also expected. So those who need to buy dollars with pounds for their next US holiday or trip might be advised to move pretty quickly if they want to lock in any gain.