Boris’s Trumpian Pounding (2 min read)
‘The worst thing you can possibly do in a deal is seem desperate to make it’ and ‘know when to walk away from the table’ are perhaps two pieces of advice Prime Minister Boris Johnson could be taking to heart from Donald Trump’s famous 1987 book ‘The Art of the Deal’. The pound has taken notice plunging to new lows. Both GBP/USD and EUR/GBP are now only 2-3% away from their valuation extremes that we flagged in our bearish sterling note from last week. And assuming a Trumpian approach to trade negotiations, the bumpy ride for the pound will likely continue in the near term.
In a worrying parallel to the first year of Trump’s presidency, Prime Minister Boris is talking fiscal stimulus, ripping up trade agreements (the UK/EU withdrawal agreement) and can soon pick a new central bank governor. The dollar tumbled back then, just like the pound is falling now. Importantly, the alignment of monetary and fiscal policy to support Boris allows more time to play chicken with the EU.
However, there is one crucial difference with the US – the UK is not the world’s largest economy. Instead, it is the weaker party in any trade negotiation. So, there may come a point that Boris may blink and take another leaf from Trump’s ‘Art of the Deal’ – this time: ‘I never get too attached to one deal or one approach. For starters, I keep a lot of balls in the air, because most deals fall out, no matter how promising they seem at first.’
One test for Boris will be this Thursday’s byelection in Wales which could see the Conservatives lose a seat to the Lib Dem’s. This would reduce the Conservative majority in Westminster to one. Of course, rather than moderating Boris, this could push him towards calling a general election, which opens the possibility of a Jeremy Corbyn government. Needless to say, we don’t think the pound will fare well in that scenario.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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