Pound v US dollar: GBP advances as TRADE WAR fears damage USD

THE pound has risen by 0.4 per cent against the US dollar today, as relations between the US and China suffer. The pound euro exchange rate has trended in the region of $1.418 today.

USD in 'tricky time' amid potential trade war with China

This is a slightly better start than last week’s pairing high of $1.416.

Despite the pound advancing against the US dollar and other peers such as the euro today, the latest UK economic news has been broadly negative.

Data from New York based think tank the Conference Board suggests that UK productivity levels will fail to rise in line with Eurozone countries in 2018, due to lingering Brexit-associated damage.

According to the Conference Board’s findings, Eurozone productivity levels are tipped to rise by 1.1 per cent in 2018, while the UK is on course for slower growth at 0.8 per cent.

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The pound US dollar exchange rate has trended in the region of $1.418 today

Particularly damning is the comparison of this forecast with the UK’s growth rate of 2.1 per cent growth seen before the financial crisis.

Highlighting the divide between the UK and continental Europe was Conference Board Chief Economist Bart van Ark.

He said: “The UK economy keeps performing consistently below European productivity growth, even as labour markets are tightening.

“So the story of recent years, that rapid job growth was worth the productivity sacrifice, seems to be backfiring.”

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The pound has risen by 0.4 per cent against the US dollar

he UK economy keeps performing consistently below European productivity growth, even as labour markets are tightening

Bart van Ark, Conference Board Chief Economist

On the other side of the currency pairing, the US dollar has fared worse on concerns about the future US relationship with China.

The first shot was fired on Friday last week, when President Donald Trump confirmed that metal tariffs were being imposed on imports from China.

Shortly afterwards, the Chinese government imposed counter-tariffs in response, which led some economists to call the action premeditated.

The fear is that a series of escalating retaliatory tariffs may have a negative knock-on effect on the global trading market, not to mention the US economy.

The Bank of England explains the exchange rate

President Trump and Chinese President Xi Jinping are strong personalities on the global stage, so these events could well be the opening skirmishes of a full-blown trade war.

Looking ahead, the pound to US dollar exchange rate could rise further when Confederation of British Industry (CBI) trade data is released on Wednesday.

Estimates are for a small rise in the trade-measuring index from 8 points to 11; this might spark a small GBP/USD exchange rate rise.

There is the chance of a US dollar recovery this afternoon when Federal Reserve officials William Dudley and Loretta Mester speak.

Mrs Mester is considered a ‘hawkish’ policymaker, so could boost the US dollar by speaking in favour of there being four US interest rate hikes in 2018.

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