Sterling pushed higher by dollar weakness as Donald Trump fails to reassure investors

 
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President Trump Swears In Senior Staff At White House
Investors have been disconcerted by Trump's focus on protectionist economic policies (Source: Getty)

The pound has risen to a one-month high against the dollar as traders failed to be reassured by US President Donald Trump’s inauguration speech. On Monday he pulled the US out of the major Trans-Pacific Partnership (TPP) trade deal with multiple Pacific-rim countries.

The pound rose by almost one per cent in intraday trading on Monday. It traded as high as $1.2496 against the dollar, its highest since mid-December, before paring some gains.

The Mexican peso, which has suffered a heavy devaluation since Trump was elected, gained from the dollar weakness. The dollar fell by over one per cent at points on Monday against the peso.

Read more: Britain is embracing free trade just as the world turns to protectionism

Meanwhile yields on the US 10-year Treasury fell as low as 2.3842 per cent at the time of publication on Monday as some investors failed to be convinced by the resurgence in the stock market following Trump’s election.

Trump began his tenure as President with a speech that continued the rancorous tone of his election campaign and painted an apocalyptic picture of the US economy.

Protectionism was prominent in the speech, with Trump vowing to “protect our borders from the ravages of other countries”, which will “lead to great prosperity and strength.”

The move to pull out of TPP is one of the first concrete signs he will act to restore the US manufacturing sector by increasing barriers to other countries.

While he vowed to build infrastructure, there was little extra detail on his plans for the economy. The dollar’s strength has been underpinned by investor expectations of a fiscal stimulus, with a big increase in spending allied with tax cuts.

Expectations of an inflationary fiscal stimulus (and a consequent tightening of monetary policy by the US Federal Reserve) were behind a massive bond sell-off in November, but since then some investors have backed off the so-called “Trumpflation” trade.

Read more: Trump's inaugural address pushes gold to a two-month high

Kit Juckes, an analyst at Societe Generale, said: “There wasn't enough about fiscal policy, tax cuts and infrastructure spending in President Trump's inauguration speech on Friday to encourage Treasury bears. Instead, the message was combative, protectionist and isolationist.”

That isolationism may prove to be an easier target than a detailed fiscal plan.

David Morrison, senior market strategist at Spread Co, said: “Finally investors can see where Trump’s priorities lie. No doubt he’s going to find it easier to make a noise on international trade relations and push what he sees as US interests than in persuading Congress to agree to fiscal measures which will add to the national debt.”

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