Trump’s latest UK visit has been rather low-key, with the US President cutting an unusually understated figure. He has tried his utmost to avoid controversy and even rowed back from previous comments about Meghan Markle and his suggestion that the NHS would be part of any future trade talks between the two nations.
This has helped to compound the positive impact of the state visit on the GBP/USD currency pairing, which according to Oanda managed to consolidate recent gains and even edge marginally higher during Trump’s stay.
But will this momentum be maintained in the near-term, and could the growth of the pound be stalled by Brexit and the Tory leadership bid? Let’s take a look.
The GBP/USD Inches Higher – But for How Long?
From the moment Donald Trump landed in the UK on Monday, he has been possessed by a sense of calm and tranquillity that has rarely been seen during his presidency.
This has had a genuinely soothing impact on the financial markets and the particularly volatile foreign exchange, with the GBP/USD inching incrementally higher over the last few days from a starting point of $1.264 when trading opened on Monday morning.
The momentum even remained unbroken amid suggestions that the NHS could be included in any trade deal between the UK and the U.S., with Trump’s decision to row back from this statement and instead choosing to talk in positive terms about post-Brexit trade having a direct impact on the value of the pound.
The relative weakness of the USD has also helped to sustain the GBP/USD recovery during Trump’s stay, although whether this can be sustained indefinitely will depend on a number of variable factors.
How the Tory Leadership Bid will Impact Further on the GBP/USD
One of the most impactful issues is the uncertainty surrounding the Tory leadership, with 11 candidates having thrown their individual hats into the ring so far.
The range of leadership candidates includes a diverse spectrum of outlooks and views on Brexit, with some being in favour of striking a withdrawal agreement with the EU and others preferring to stay wedded to the ideal of a no-deal exit.
Of course, Boris Johnson is currently ranked as the odds-on favourite to be parachuted into the role of PM. For all of his flaws, he’s still considered to be the most electable amongst his peers.
Whilst this is easing some of the negative sentiment and downward pressure of the pound, his enthusiasm for a no-deal Brexit is something that will arguably drive the value of the GBP/USD pairing down over the coming months.
Sure, driving through a no-deal Brexit would end the uncertainty that’s currently gripping the UK economy and the pound, but the impact of this decision would undoubtedly send currency values plummeting to post-referendum lows in the short term.
The Last Word
Whilst the forex market is renowned for its ability to thrive and offer opportunities to profit during periods of volatility, some levels of uncertainty are difficult to sustain.
Brexit offers a relevant case in point, as a no-deal exit will bring untold challenges whilst leaving businesses feeling in the dark in a bid to consolidate their positions.
So, if Boris Johnson does come to power and the UK follows a no-deal path (which seems to be the most logical outcome right now), the only viable long-term strategy for traders will be to hedge against the pound in favour of the USD and other major currencies like the Euro.