The British pound has posted losses in the Tuesday session. In North American trade, GBP/USD is trading at 1.3173, down 0.55% on the day. On the release front, there are no British releases. In the US, construction data was mixed. Building Permits dropped to 1.30 million, shy of the estimate of 1.35 million. This marked a 3-month low. Housing Starts improved to 1.35 million, beating the estimate of 1.31 million. On Wednesday, Federal Reserve Chair Jerome Powell will participate in a panel at the European Forum in Sintra, Portugal. The U.S will release Existing Home Sales.
Are we heading for a global trade war? Investors are nervous, and this sentiment has boosted the U.S dollar on Tuesday. The British pound is having a rough week and is currently trading at its lowest level since early November. The most recent round of the trade spat between China and the U.S started on Friday, when the U.S announced a 25 percent tariff on $50 billion in Chinese goods. After China responded with an identical move on U.S. imports, President Trump has now threatened to impose 10 percent tariffs on some $200 billion in Chinese goods. Not surprisingly, China has threatened to retaliate against this latest move. Trump has vowed to take action on the $375 billion trade deficit that the U.S has with China, claiming that the latter is guilty of unfair trade practices. With the first of the U.S tariffs scheduled to take effect on July 6 and no signs that either side will blink first, the pound could continue to lose ground.
The Brexit talks remain stalled, as the European Union and the U.K remain far apart on a number of key issues. The Europeans are in no mood to play nice with the U.K and are exasperated by the lack of direction from the May government. Key issues remain the Irish border, the role of the European Court of Justice on EU citizens living in Britain, and the nature of trade relations between Britain and EU members in the post-Brexit era. Both sides are preparing for the possibility that a deal will not be reached by March 2019. The scenario of a ‘hard Brexit’ could sour investor sentiment towards the U.K and put pressure on the struggling British pound.
