|  Updated: 

Pound sterling falls on latest Trump tariff threats

By:

Add as a preferred source on Google
BATH, ENGLAND - OCTOBER 13: In this photo illustration, the new £10 note is seen alongside euro notes and US dollar bills on October 13, 2017 in Bath, England. Currency experts have warned that as the uncertainty surrounding Brexit continues, the value of the British pound, which has remained depressed against the US dollar and the euro since the UK voted to leave in the EU referendum, is likely to fluctuate. (Photo Illustration by Matt Cardy/Getty Images)

Pound sterling suffered on Tuesday as traders attempted to work out the implications of President Trump’s latest comments about tariffs.

The pound was trading around 0.5 per cent lower against the dollar, at $1.243 on Tuesday morning. The dollar index – which measures the greenback against a basket of global currencies – was trading around 0.5 per cent higher.

The movement in currency markets came after the latest comments from the President on his tariff plans.

A report in the Financial Times suggested that Scott Bessent, the Treasury Secretary, wanted to take a gradual approach to imposing tariffs, which would give businesses time to adjust.

Bessent reportedly favoured starting with a universal tariff of 2.5 per cent, which could rise as high as 20 per cent if trading partners refused to make concessions.

However, when asked about the proposals, Trump said he wanted a rate “much bigger” than 2.5 per cent.

“I have it in my mind what it’s going to be but I won’t be setting it yet, but it’ll be enough to protect our country,” he said on Monday night.

The comments highlight the challenges facing investors as they attempt to forecast the likely impact of President Trump on the global economy.

“These comments contradict the markets’ tentatively sanguine assumption that tariffs would be more of a case-by-case measure (like for Colombia) and not universal,” Francesco Pesolo, an FX analyst at ING said.

Punitive tariffs would strengthen the dollar, as most economists think protectionist policies will reinforce inflationary pressures, keeping interest rates higher for longer.

It comes after a new survey from Oxford Economics showed that the extent of concern in the global business community about a possible trade war.

Two-thirds of respondents to the consultancy’s latest global risk survey said President Trump’s policies pose a major ‘very significant risk’ to the global economy over the next couple of years.

Of these, just over half (51 per cent) said a global trade war was the most significant downside risk to the economy over the next two years.

“The implications of President’s Trump’s policies replaced geopolitical tensions as businesses’ top near-term downside global economic risk,” the survey said.

But, somewhat counter-intuitively, senior executives also think that Trump’s fiscal policies are the greatest potential upside risk for the economy. More than one third (36 per cent) said Trump’s fiscal stimulus was the most significant possible tailwind for the economy.

The companies participating in Oxford Economics’ survey collectively employ around 6m people and have a total turnover of around $2trn.