The dollar started the day a little stronger after last night’s FOMC meeting, which was read as an acknowledgement of the risk of stagflation (no early Fed cuts). Also helping the dollar is the focus on the announcement of a US-UK trade deal today and whether the baseline 10% tariff can be negotiated away. The Bank of England is expected to cut today.
USD: Dollar to take its cue from the US-UK trade deal
Following a social media post from President Trump last night that a major trade deal would be announced at 16CET/10ET today, speculation is rife that it will be a US-UK agreement. While US-UK trade relations are not usually a material driver of global financial markets, today’s deal may have more impact than usual. In focus will primarily be whether the 10% baseline US tariffs in place under the current ‘paused’ conditions can be negotiated away. Consensus expects it to remain in place on the view that Washington needs tariff receipts to fund tax cuts this summer. If the baseline 10% is removed, this would be a bullish surprise for risk assets and would probably see an extension of today’s dollar and equity market rally.
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