The pound to dollar rate is facing a mountain of downside risks coming from at home and overseas as President Donald Trump embarks on a second major offensive in the trade war with China and the UK government is said to be under pressure to terminate the cross-party Brexit talks.
|Currency Pair||% Change (Month)||Difference on £200,000|
This is after President Trump said in a Twitter post the previous Sunday that tariffs on $200 bn of annual imports from China would rise from 10% to 25% on the Friday concerned due to Chinese back peddling on commitments made earlier in trade negotiations. China announced a set of retaliatory tariffs on US goods which is to be expected from the statements made by the Trump and the continued pressure of these increase tariffs.
The appetite for emerging market currencies were further fueled in March when President Trump suspended "indefinitely" the 10% to 25% tariff increase that went ahead on Friday. But that suspension was always subject to change on good faith negotiations resulting in a deal agreeable to the White House. From these tariffs the emerging markets are seemingly going to push for more trade and investment in to those areas until the trade war is given more clarity.
Many suggest the greenback's safe-haven status is propping it up, as the downward move has been too small for it to accurately reflect the much poorer outlook for US interest rates. Financial markets have already been betting on a Fed rate cut coming as soon as year-end, but investors have increased those wagers ever since Trump began firing tariffs at China again.
The US is light on the data for today but there are a few expected changes in the import and export price index figures which is expected to show a decrease in exports (MoM) of 0.5% form 0.7% and the import price increased from 0.6% to 0.7%.
This index reflexes the change in price on the goods coming in and out of the country. The change is due to the continuing trade war between the USA and China. The impact of the tariffs will be felt on the next figures as the changes didn’t come into effect until last Friday.
Tariffs cause economic damage primarily by rendering one country's exports uncompetitive relative to those of others, but if China is going to be hurt in the tariff fight then it won't be long before the fallout hits Europe given the close economic relationship between the two. This is concern for the GBP/USD rate as Brexit talks seem to be dead in the water currently, meaning the trade war is the front of any movement in the rate. As seen by the drop to levels below the key resistance of 1.30, coupled with the news that Theresa May has now reportedly rejected a customs union. This was the main hope for the cross-party talks to bear any fruit.
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