Not Even Trump's Bubble Bursting Can Help The UK Pound
It seems odd to think of the “POTUS”, Donald Trump, having enjoyed a honeymoon period at the start of his first term, when we consider the country-wide protests that greeted his inauguration, the awkward and difficult stand-off with the US and British media, and Trump’s inability to shoehorn his picks into the government positions he had earmarked for them.
But as far as the stock market is concerned, an extended honeymoon period is exactly what he has had.
Since Trump took office, the S&P 500 has traded higher and higher, hitting a peak of nearly 2,400, and for the 12 days up until Trump’s first speech to Congress which took place on Tuesday, the Dow Jones completed a streak of record high closes.
The reason for this unexpected show of faith by the markets? Trump has talked a great game. From Michigan to Maryland, Trump has promised Americans’ jobs, investment in infrastructure and a nationwide push to put American industries back on the world map - not that, in truth, they had ever gone away.
And the markets believed him – which is why share prices have soared – reflecting the optimism generated by Trump’s relentlessly positive rhetoric.
Doubts are beginning to surface, however, because as we all know, actions speak a lot louder than words.
Yesterday’s speech to congress was an opportunity to show Americans and the world, that he was making real progress, by explaining exactly how, for example, he intends to trigger 3% growth in America’s GDP.
Instead, he was light on detail and big on rhetoric, which is increasingly beginning to feel meaningless.
If he doesn’t start showing evidence of real progress soon, the buoyancy in the US markets will be short-lived, and pessimism and doubt, powerful market forces, will start to drive the value of US companies, and most likely the dollar, back down.
Sadly, the pound has not been able to expose this chink in the Trump armour. Brexit woes still dog its every fluctuation. The pound has slipped against the dollar to around $1.241, and dropped further against the euro, which has hardly been enjoying an easy ride itself, to €1.170.
Consumer confidence in the UK is at rock bottom, so the idea of the country spending its way out of trouble is a fanciful one. When it comes to doom and gloom, the pound’s problems “Trump” both the Eurozone crisis, and the sense of unease in the US that their President may be struggling to “Make America Great Again”.
It’s no consolation, but nobody can say they weren’t warned.