Risk aversion as US – China tensions flare up again is boosting the US Dollar versus the Pound in early trade on Monday. At 07:00 UTC, GBP/USD is trading -0.5% lower at US$1.2448 paring some of the gains from the previous week.
The Pound US Dollar exchange rate closed last week 1% stronger at US$1.2505, towards the upper end of the weekly trade range of US$1.2369 – US$1.2643.
US Dollar Jumps On China Blame Game
Renewed friction between the US and China is dragging on risk sentiment across the financial markets at the start of the week. Mike Pompeo reiterated President Trump’s efforts to pin blame for the coronavirus on China and particularly on a laboratory in Wuhan, China.
Trump’s threats of trade tariffs and his growing desire to pull supply chains from China is fuelling fears that the trade deal, signed in January, could be under threat. A strong report on how coronavirus developed in China is expected by President Trump today.
When risk sentiment falls investors often move towards safe haven assets and currencies such as the US Dollar, whilst riskier assets such as stocks declined.
The renewed trade war fears come as the US starts to slowly reopen states. 31 states are kick off phase one of reopening the economy. However, Trump also warns that the death toll in America could reach 100,000.
UK Business Confidence Tanks
The Pound is trading on the back foot after UK business confidence slumped by the most on record last quarter, as financial leaders said that they didn’t see a quick recovery from the coronavirus hit to the economy.
In Deloitte’s quarterly survey 104 chief financial officers said that they expected revenue to be around 20% lower than previously expected. The majority also said that they don’t see demand recovering to pre-coronavirus levels until the second half of 2021.
Whilst there is no high impacting UK data due to be released today, this week promises to be a busy week. US – UK trade talks are expected to start tomorrow, the BoE will announce its monetary policy decision on Thursday and Boris Johnson will set out Britain’s lock down exit strategy.
