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GBP/USD Exchange Rate Fluctuates as Trade Tensions Build

March 7, 2018 - Written by John Cameron

The Pound US Dollar (GBP/USD) exchange rate was met by volatility on Wednesday as the risen threat of a global trade war weighed heavily on markets.

US Dollar’s (USD) Rocked by Increased Trade War Fears



The US Dollar came under renewed pressure today following the resignation of Donald Trump's top economic adviser, Gary Cohn over the President’s decision to press ahead with controversial tariffs on all steel and aluminium imports.

This has reignited fears that the US could spark a major trade war with Europe and other trading partners, with Cohn’s influence being seen as a possible limiting factor on some of Trump’s more radical trade plans.

Analysts at Royal Bank of Canada suggest;

‘Cohn staunchly opposed the invocation of Section 232 of the Trade Expansion Act to impose steel and aluminium tariffs and his resignation has been taken as a strong indication Trump would go ahead with a set of less measured tariffs, risking a larger trade war.

‘Adding to those fears, Trump is said to be considering a clampdown on Chinese investment in the US and broader tariffs in retaliation for alleged intellectual property theft.’

Further compounding these fears was the announcement from the Europe Commission of a number of US imports that could face possible tariffs in response to Trump’s new trade policies.

European Commissioner Cecilia Malmström, suggests that a number of iconic American products could be hit, including bourbon, peanut butter and orange juice.

Talking in Brussels Malmström said;

‘Certain types of bourbon are on the list, as are other items such peanut butter, cranberries, orange juice, etc. Very soon that list will be public, so you will be able to plan your whisky drinking.’

Critics of Trump’s trade proposals suggest that the steel tariffs are likely to hurt large parts of the US economy, in order to salvage a relatively small US industry.

Pound (GBP) Pressured by Brexit Uncertainty



Meanwhile Sterling struggled to find traction today as Brexit concerns continued to weigh on market sentiment.

The latest bout of uncertainty came as European Council President Donald Tusk is unveiled its guidelines for the second stage of Brexit negotiations.

The document draws some clear ‘red lines’ in Brexit talks, as they essentially reject Theresa May’s proposals that a free-trade deal may be possible if the UK remained closely aligned to EU regulation.

The guidelines also appear to fly in the face of Chancellor Philip Hammond who wants to see financial services to be included in any Brexit trade deal.

Hammond is expected to say later today;

‘If it could be done with Canada or the USA... it could be done with the UK. I am clear not only that it is possible to include financial services within a trade deal but that it is very much in our mutual interest to do so.’

The second phase of Brexit talks are expected to get underway later this month, following a summit in which EU leaders will sign off on the guidelines.

GBP/USD Exchange Rate Forecast: UK Trade Deficit to Narrow?



Looking ahead the GBP/USD exchange rate may be able to rally at the end of this week’s session as the UK publishes its latest trade balance.

Economists forecast that the UK’s trade deficit will have been slashed from -£4.8bn to -$3.8bn at the start of there year, thanks to increased demand for UK exports.

Analysts suggest that this will have also supported a rebound in the UK’s industrial production, with factory output expected to jump from -1.3% to 1.5% in January.

However any gains for GBP/USD may prove to be short lived as Friday is also set to see the release of the latest US payroll figures, with analysts suggesting that another robust raise in payrolls will see the US unemployment rate slide to just 4% in February.

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