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US trade war heats up

Published: Thursday 12 July 2018

  • ​​More US trade tariffs on the way
  • US Dollar remains stable against GBP
  • Brexit resignations increase pressure on Prime Minister
The heat is on and not only due to the sweltering UK summer! Not only has the US trade war begun in the last month, it is already heating up further.

The opening salvo began with the United States introducing 25% tariff on imported steel and 10% on aluminium from Canada and Europe. Both retaliated with like-for-like tariffs on a range of American goods.

Then the US imposed 25% tax on imports of $34 billion of 818 Chinese goods. China also added retaliatory 25% tax on imported US goods including cars, soya beans and lobsters.

More US trade tariffs on the way

Now, President Trump has gone further, announcing its intention to place tariffs on another 6,000 plus items in a move worth $200 billion. China has said the threat is "totally unacceptable," and that it will harm the world and the United States.

The President has also threatened to ultimately introduce tariffs worth a staggering $500 billion.

China has said it will respond, but it cannot match the $234 billion tariffs so far mooted, because last year the total value of US goods exported to China was around $130 billion, so it remains to be seen what sanctions it will impose.

The tariffs are a response to unfair trade practices, says the United States. It wants an end to practices that are clamed to encourage the transfer of design and product ideas to Chinese companies. These include stipulations that to gain access to the Chinese market, foreign firms must share ownership with local partners.
Chinese Yuan Note and U.S. dollar background - Halo Financial
US dollar remains stable against GBP

Although stock markets have been in turmoil over the trade war, the US dollar has been pretty stable against major currencies. Against the Pound in the last month typical mid-market rates varied by 0.4% from a high of 1.338 to a low of 1.307. At time of writing, it is around 1.323. See Halo Financial’s latest guidance for US dollar buyers and sellers below.

President Trump coming to the UK

President Trump is due to arrive in the UK on the 12th July, where he is scheduled to meet the Queen, Prime Minister Theresa May and visit Scotland. Before his visit, he already caused anger by suggesting the UK is in "turmoil" and "it is up to the people" whether Theresa May remains Prime Minister.

Vociferous protests are expected, including the planned flying of a Trump baby blimp. A recent poll from YouGov suggests President Trump is liked by just 11% of Britons, with 34% not liking him but recognising the UK needs to work with him and 36% not liking him and not wanting the country to work with him.
Brexit resignations increase pressure on Prime Minister

Britain is facing its own crisis, as the long-running Brexit saga has taken more surprising twists and turns this month, weakening Sterling.

In early July, the UK cabinet held a vital summit at the Prime Minister’s Chequers country estate to agree the terms of trade following the UK’s exit from the European Union in March 2019.

A so-called ‘soft Brexit’  plan to create a free trade area for industrial and agricultural goods and the idea of setting up a “combined customs territory” was seemingly approved by ministers.

However, the proposals angered hard-line Brexiteers and two days after the Chequers summit, Brexit Secretary David Davis resigned, followed by no less than Foreign Secretary Boris Johnson. Other junior ministers and party officials also resigned.

Mr Davis said he was unable to continue as the current policies and tactics made it "look less and less likely" that the UK would leave the customs union and single market.

Theresa May gamely carried on, reshuffling her cabinet, and plans to imminently publish the Chequers proposals in a White Paper and continue negotiations with the European Union.

However, there are reoccurring rumours that  hard-line Brexiteers are planning to challenge the UK Prime Minister Theresa May, which could bring down her minority government.

All that, even before the plan has to pass another tricky hurdle of being acceptable to the European Union itself. Although the EU’s chief Brexit negotiator, Michel Barnier, responded positively, saying 80% of a deal with the UK has already been agreed, it is widely expected that Mrs May will need to come up with more concessions before any agreement is finalised.

Guidance for buying USD

The Dollar has rebounded off of the seven-month lows and the momentum indicators would suggest that the downtrend may at least have paused for a corrective rally in the short term. Any move towards 1.3500 should be sold into as the downtrend is still in place. 1.300 is still a huge psychological level of support and protection should be left below that price. A sustained break below 1.3000 would suggest a quick move to test 1.2800.

Guidance for selling USD

Still close to the seven-month low and as the momentum indicators are suggesting a correction it would be sound to reduce any near-term exposure close to current levels. A break above 1.3500 would be disappointing and I would suggest leaving stop loss orders above there for those with longer-term requirements.

GBP USD July 2018
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