While the immediate turmoil caused by US president Donald Trump’s inconsistent tariff policies may be over, the week began with the dollar in steady decline against a basket of currencies. USD hit a three-year low and US stocks were slumping along with it.
The president had spooked traders by threatening to replace Jerome Powell, chair of the US Federal Reserve, for refusing to cut interest rates. Powell has said for months that he would maintain the high rates to hold inflation in check in the face of economic uncertainty.
For the pound, this dollar decline meant hitting an almost two-year high against USD. A sharp reversal of where it had been wallowing in the previous months.
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Speaking yesterday, Trump reassured the US markets, saying he had “no intention” of firing Powell and even indicated that the current 145% tariff on Chinese goods would be lowered in the future.
UK chancellor Rachel Reeves is currently in Washington and allegedly on the cusp of signing a trade deal with the US. The agreement would see tariffs against steel, aluminium and cars reduced and may lead to UK growth forecasts looking a little rosier. Though, as Trump has shown with Ukraine, he is very willing to walk away from ready-to-sign deals at the last moment.
Throughout today and the rest of the week, data and forecasts from a range of banks, including the International Monetary Fund, will reveal the impact of Trump’s first months on global industry. So far, all the forecasts and survey results have shown declining growth, and this puts even greater pressure on the Bank of England to cut interest rates when the Monetary Policy Committee meets on May 8.
So even as Trump waters down his policies and tempers his strongest words, the markets remain volatile and uncertain.
