Donald Trump has stated he is willing to impose tariffs of up to 45% on Chinese goods. His choice of words were dramatic as always.
The consequences of such a move would be catastrophic, in my view, stupid. Buying goods domestically can be 20-30% more expensive. Imagine a retailer forced to purchase 45% of his product at such a higher price, GDP would without a doubt suffer.
Cheaper labour means cheaper product, I do not think US workers would be willing to work at the same rate of pay as the Chinese.
It is also important to remember the level of debt the US owe to China is in excess of USD 1.3 trillion. Which makes up nearly 10% of total US debt. It may not be a wise idea to start playing hardball.
At the end of 2016 we saw a rate hike from the Federal Reserve and forward guidance has estimated there could be as many as three more during 2017.
The head if the Fed, Janet Yellen has been under pressure from Trump recently to raise rates due to her usual dovish tone in relation the rise in interest rates. In true Trump style, he threatened her position if her stance did not change.
Similar forward guidance was put forward the year before, but the hike in 2015 proved to be the only rate change in the next twelve months. I think again we may be taken for a ride, If you had asked me a few weeks ago I would have thought rate hikes were more probable, but Trump has recently stated he is worried about the strength of the US Dollar and how it could impact trade.
Although the Fed are not meant to be influenced by the government, the strong US Dollar could be a problem and this may cause the Fed to be cautious with any potential rate hikes. This could be positive for Sterling later in the year.
Further US Dollar weakness may continue off the back of Trumps recent announcements, and clients buying or selling the US Dollar may be prudent to protect their current position from further fluctuations.. Speak with one of our brokers today on 01494 725 353 if youd like to learn more on how we can help you.
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