HomeContributorsFundamental AnalysisGBP/USD - May Hopes to Play Trump Card

GBP/USD – May Hopes to Play Trump Card

GBP/USD has posted losses on Friday, continuing the downward movement in the Thursday session. Currently, the pair is trading at 1.2550. On the release front, there are no UK events on the schedule. Over in the US, it’s a busy day, with the release of durable goods orders, UoM Consumer Sentiment and Advance GDP. The markets are expecting the GDP report, the first for Q4, to post a gain of 2.1 percent.

After the Brexit vote in June, many pundits predicted that the economy would tailspin. However, the economy has remained steady. On Thursday, Preliminary GDP beat the estimate, posting a strong gain of 0.6% in the fourth quarter of 2016. At the same time, negotiations with the European Union have not yet started, and even staunch Brexit supporters would be hard pressed to argue that the economy will not take a hit when Britain leaves the continental club, at least in the short term. On Friday, Prime Minister May meets President Trump in Washington, the first foreign leader to meet the new president. Trump has spoken glowingly about the Britain’s decision to leave the EU, and May could use Trump’s admiration and support to her advantage, in the form of a free-trade deal with the US. May will have to navigate through rough waters when she negotiates the terms of Brexit with the Europeans and is looking to return home with some progress towards a new trade agreement with the United States. Such a deal would be a key achievement for the British leader, who could then demonstrate to her opponents, both domestically and in Europe, that Britain can "go it alone" without the EU.

Barely a week into the presidency of Donald Trump, there are already signs of the economic approach the administration appears to be taking. Trump declared in his inauguration address that he would put "America first", and he has followed up with some protectionist measures. Trump formally withdrew the United States from the Trans-Pacific Partnership, a broad trade agreement that would have covered some 40 percent of gobal GDP. After announcing he would renegotiate the NAFTA agreement with Canada and Mexico, Trump took aim at his southern neighbor and announced that he would build a wall between the US and Mexico. Predictably, Mexico has reacted angrily to this move, and a scheduled meeting between Trump and Mexican President Enrique Peña Nieto has been cancelled. In the latest salvo in the growing crisis, the White House White House suggested imposing a 20 percent tax on Mexican imports to pay for construction of the wall. Trump’s unconventional and disjointed approach to international trade could have major ramifications on global trade and could lead to financial instability in global markets.

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