Donald Trump has continued to test the market’s nerves as investors await confirmation that the potential Shutdown Part 2, will take place. The agreement from Monday indicated that $1.4bn would be made available against the requested $5.7bn, Trump stated yesterday ‘we will build the wall’ and we might assume he will do everything he can to get there.
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These expectations helped the US dollar to rally earlier in the week although numerous risks remain ahead, the US dollar has been weaker as investors predicted that the US economy will slow down from the negative consequences of important areas of the US economy being placed on hold.
2019 was always going to be a testing year for the greenback following the strong growth of 2018, we know this year is unlikely to see such a strong economy, but to what extent will the US economy be held back? Yesterday, Chairman of the Fed Jerome Powell indicated pockets of weakness in the US economy which might spell trouble ahead for the greenback.
Investors will now await developments in particular over China and the US’s well publicised confrontations. The 1st March deadline looms and agreement to extend it, thereby helping increase global confidence, seems high.
Trade wars are another area of concern for the markets and Mark Carney delivered a speech yesterday highlighting the risk of recession in the US was around 20%, cited the Trade Wars as a major source of global concern and humorously commented that ‘contrary to what you may have heard, it is not easy to win a trade war’.
The threat of a worsening situation is likely to weigh on the US dollar, but might also hurt sterling too. In assessing the negative effects from a Chinese slowdown, Carney cited data that shows for every 2% reduction in Chinese growth, it would lead to 1% off UK growth and half a percent off global growth, highlighting just how the closely the global economy is connected.
GBPUSD rates were largely unmoved by the speech but sterling steadied after the Bank of England Governor outlined his thoughts on the global economy, and his belief the Bank of England has made adequate preparation for a no-deal. Of course, his preferred view is that the sides come together to provide businesses the certainty they need.
GBPUSD levels are once again below the 1.30 handle and the familiar suggestion to buy US dollars when over 1.30 and sell when below seems sensible. Brexit will continue to be an important driver on the pairing, Theresa May has once again pushed the data back for further news.
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