The dollar saw significant losses against the pound and euro on Tuesday, falling nearly 0.4% against both currencies. However, as these falls came after the announcement of a US-Japan trade deal, it appears traders are taking their money out of the dollar to invest in shares.
Tuesday began with the news that UK government borrowing costs had increased again. Though Chancellor Rachel Reeves pledged to stick to her fiscal rules, but didn’t rule out the introduction of a wealth tax in the autumn budget.
Reeves said we’re living in an “age of insecurity”, which speaks to the uncertainty we’ve seen in the markets since US President Donald Trump returned to office. Although the Monetary Policy Committee at the Bank of England has decided to cut interest rates multiple times this year, this fresh uncertainty around tax rises and debt costs may put pressure on the group to hold rates steady when they next meet on August 8.
Meanwhile, over in the US, Trump’s much-awaited trade deals have begun to be struck. Yesterday saw deals agreed with Japan, the Philippines and Indonesia. The headline deal with Japan sees tariffs lowered from 25% to 15%, and it’s seen Japanese stocks soaring.
It could be this deal is behind the drop in the dollar. With trade agreements being signed and growing faith that when the tariff hiatus ends on August 1 the global economy won’t be sent into a spin like the one in April, traders are selling their safe dollars and investing in the stocks and shares that were left vulnerable by trade changes.
Over in the EU, Germany and France are readying EU members to retaliate against 30% US tariffs due to come in on August 1. Though Trump has warned that any retaliatory tariffs will be met in kind by the US.
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