By Tom Arnold
The big story of this week on the currency markets has most definitely been the tariff announcement on Wednesday by President Trump in the US. A vast array of tariffs were announced covering most of the countries around the world, with the big losers being China, the EU and an array of far eastern countries. The immediate impact of the tariffs was a significant drop in the equities markets and around 2% of Dollar weakness against the Pound, largely as a result of the perceived impact the tariffs will have on the US economy, with bets of a recession in the US now significantly increased.
Another reason for the Dollar weakness relates to an unwinding in the traditional view of the US Dollar as a safe haven currency. Typically when there is global turmoil investors pile in to the Dollar for its perceived safety, but with President Trump declaring global trade war, the Dollar’s view as a safe haven has been significantly eroded, which means investors coming out of Dollar positions, which adds to the weakness.
The big winner was the Euro, which does tend to gain when the Dollar loses anyway, a bit like a seesaw, but in this case has gained even more strongly, with it presumably sucking up some of those safety seeking investors. While Sterling made those 2% gains against the Dollar it lost around the same amount against the Euro, which means that while that holiday property in Florida got a lot cheaper, a €200,000 property in Spain got around £3500 more expensive.
There has been other data out this week and this afternoon we have one of the most important monthly released in the US non-farm payrolls, but it is hard to see how anything could change the current tariff-weighted view. Although in the case of NFP it could point to further US Dollar loses if employment numbers are lower than anticipated.
What is for sure is that a global economic tariff war is going to cause significant and very unpredictable volatility, so now more than ever it is probably a good idea to consider risk removing mechanisms to protect against sudden market movements – stay in close contact with your A Place in the Sun Currency consultant to discuss your options.