GBP USD Tumbles as Bombardier Tariffs Hurt Hopes for Free Trade

September 27, 2017 - Written by John Cameron

STORY LINK GBP USD Tumbles as Bombardier Tariffs Hurt Hopes for Free Trade

The Pound US Dollar exchange rate tumbled this morning following news that the US Department of Commerce ruled in favour of Boeing over Canadian aircraft manufacturer Bombardier (levying a significant 219.63% export tariff) and that new orders for US manufactured durable goods smashed expectations.

Bombardier Export Tariffs Hurt GBP USD

Bombardier, responsible for some 4000 jobs in Northern Ireland recently lost its lengthy legal battle with Boeing, who claimed that Bombardier was utilising subsides from both the governments of Canada and the UK to sell product far below cost in the US.

As a result, the US Department of Commerce levied a 219.63% tariff against the export of Bombardier’s C-Series jet to Delta airlines within the US, (almost tripling the cost of the aircraft to near $61 million per plane), throwing the future livelihood of some 4000 Bombardier staff in Northern Ireland into question and potentially damaging future UK – US trade relations.

The timing of this news is also somewhat awkward, with UK Foreign Secretary Boris Johnson due to speak today at the Institute for Free Trade – a new think tank meant to encourage trade relations post-Brexit for the UK.

This news drove caused demand for the Pound to tumble, with many switching to the ‘Greenback’ in favour of the latest positive data prints from the US and indeed the current hawkish sentiment from Federal Reserve (Fed) Chair Janet Yellen.

US Durable Goods Smash Expectations, USD Bolstered

New orders for essential US-made capital goods smashed expectations in August, pointing to underlying strength within the US economy, irrespective of the anticipated drag caused by storms Harvey and Irma.

The Commerce Department reported that new orders for US manufactured goods rose 1.7% month-on-month in August smashing both the -6.8% slump reported in July and the 1% gain forecast.

Contributing to this figure; transport equipment orders, which climbed 4.9%, with motor vehicles and parts increasing 1.5% and nondefense aircraft orders hitting a whopping 44.8%.

The non-defence capital goods order figure, which excludes aircraft and is generally seen as a proxy for business spending plans, increased 0.9% in August, following the upwardly revised 1.1% print in July.

This news catapulted demand for the ‘Greenback’ even further, cementing today’s lead against the Pound Sterling.

GBP USD Forecast Gloomy as Yellen Calls for Rate Hikes

The outlook for GBP USD remains somewhat gloomy in the near-term, particularly in the wake of recent hawkish comments from Fed Chief Janet Yellen.

At a recent speech Yellen noted that whilst the cause for soft US inflation continues to elude her, members of the central bank are still keen to push for another rate hike before the end of 2017.

Indeed, Yellen stated that it would be ‘imprudent to keep monetary policy on hold until inflation is back to 2%’ suggesting that the central bank is becoming increasingly anxious to push for a rate hike, regardless irrespective of inflation being below target.

This news pushed Fed rate hike bets for December up from 60% to 70% and drove GBP USD even lower, with many anticipating equally hawkish sentiment from Fed officials Lael Brainard and Eric Rosengren when they speak today.

Tomorrow market attention will shift to the final US GDP Q2 growth rate figure, (which is currently forecast to demonstrate growth of 3%, up from the previous period’s 1.2%), the US jobless claims figure, and the advanced goods trade balance.

Notably, however; Bank of England Governor Mark Carney is due to speak at the Independence Conference in London tomorrow and if he repeats hawkish sentiment then Sterling may begin to contend with the ‘Greenback’s’ rally.

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TAGS: Dollar Pound Forecasts