GBP/USD has edged lower in the Tuesday session. Currently, the pair is trading at 1.3136, down 0.18% on the day. On the release front, there are no British events. The U.S will release the NAHB Housing Market Index. On Tuesday, the UK releases a host of inflation indicators, led by CPI. The U.S. publishes building permits and housing starts.
A welcome respite in the U.S-China trade spat was shattered on Monday. President Trump imposed tariffs of 10% on some $200 billion worth of Chinese goods and threatened further action if China retaliated. Unlike earlier round of tariffs, the Canadian dollar has managed to hold its own, and investors have not flocked to the U.S dollar. The reason? Investors were braced for a move by Trump, and may be sighing in relief that the tariff was set at 10% rather than at 25%. One senior economist summed up Trump’s most recent salvo as “bad but manageable”. However, if the Chinese retaliate and the U.S takes further measures, this would likely shake up the currency markets and boost the U.S dollar.
British Prime Minister May faces pressure from both the Europeans and Conservative lawmakers at home. There has been talk that her job is in jeopardy, but May is doggedly moving forward, declaring that a Brexit deal will be reached on her terms or not at all. The Europeans may still be smarting from the UK’s decision to leave the club, but they prefer to deal with May rather than the Brexit hardliners. This means that the EU could show more flexibility in negotiations, such as over the thorny issue of the Irish border. At the same time, Brexit is only six months away, and the two sides will have to press hard on the gas to hammer out an agreement before the March deadline. There will likely be plenty of bumps along the Brexit road, which could spell headwinds for the British pound.
