Good morning,

Shortly after the close of business in the UK yesterday, where the majority of the focus was on the near-term collapse of the GBP off the back of continuing brinkmanship between the UK government and Brussels – nothing new there – focus instead shifted across the Atlantic to Donald Trump’s shock tariff announcement.

After a seemingly softer tone from Beijing with regards to the increased purchase of US agricultural goods to assist with the rebalancing of trade flows, in typical fashion, President Trump announced an additional 10% tariff on all Chinese goods that hadn’t already been hit by previous sanctions.

This will go into effect on September 1st, which essentially completely derailed any progress on a deal thus far. Stocks immediately fell stateside and USDJPY plunged as investors looked to move funds from the crossfire – the main beneficiary being the yen, which many see as a haven currency; a status the USD enjoyed for many years.

The news will place additional pressure on the US jobs numbers due out at 13:30 GMT to be impressive; as the crux of Trump’s re-election bid rests upon a positive jobs markets and a rebalancing of trade deficits via an export-led economy. As mentioned in my previous article, “Loose lips sink sterling”, maintaining a cheap USD and creating jobs simultaneously is tremendously difficult, as increasing jobs numbers generate belief in the US economy and strengthens the USD. While this fulfils Trump’s desire for jobs, he then lets his ambitions of an export-led, cheap dollar fuelled economy fall by the wayside. The numbers produced will certainly cause volatility either way, as the market tries to make sense of not only the brand new tariffs but also of the above contradiction in terms which has come to define the current administration’s economic policy.

In the UK, the £2.1bn being allocated to ease a no-deal scenario has further spooked sterling – as if it didn’t have enough riding against it already – as the market reaffirmed its belief that no-deal is becoming the new norm and is just one step from becoming policy. The Bank of England held rates as expected, but poured further cold water onto the UK’s growth forecast for the next three years. Couple this with the thinning of the Conservative majority to a single MP after last night’s Brecon and Radnorshire by-election, and it’s not hard to see that GBP looks unlikely to budge from its slump in the near term.

Regardless of one’s own political affiliations, a question that I have been asked repeatedly over the last week has been “What will happen if we have a general election before the 31st?”

The answer, regardless of voting intention, is the same – a general election in the UK’s current condition would more than likely be adverse for the pound. Simply put, adding even more uncertainty to a climate already containing the largest political uncertainty in living memory would likely push the GBP to new lows – especially when considering the constrictive time limit.

One thing that I would certainly advise would be to contact your account manager to discuss the above, as giving them a good gauge of your risk appetite will allow us to suggest options on how to ensure that your exposure is reduced, even in such testing times.

Have a fantastic weekend.

Author: Joshua Haden-Jones, Private Dealing Account Manager.