It was an undeniably exciting weekend with new President Trump’s long anticipated inauguration finally happening. Love him or loath him, he is definitely changing the ground rules for the U.S. and the rest of the world.
One of the most important economic declarations he and the new administration have been making is that the strong dollar policy is misguided and detrimental to American jobs and business growth. This could be the opening salvo in a much-feared trade war with China.
Meanwhile, across the pond in Britain, Prime Minister Theresa May is preparing to link her political and Brexit future prospects up to the Trump juggernaut. She has been honored as the first foreign leader who President Trump will meet with in the White House Oval Office.
Naturally this is chafing the European Union heads who are desperately attempting to derail the success of a Brexit which threatens the continued integrity of the largest market in the world. The European Brexit point people have already declared their intention to see that no country is better off outside of the EU than within it.
Not all is well for Prime Minister May’s Brexit endeavors as three of the largest and most important banks in the world (including the largest British bank HSBC) have already announced they will move significant numbers of staff across the channel to other countries that retain the passporting rights to do business without tariffs or restrictions across the single market block. These are all reasons why gold should be a part of your retirement portfolio, and also reasons not to sell your gold.
New President Trump Alludes to the Death of Strong Dollar Policy
Both President-elect Donald Trump and inaugurated President Trump have shocked the world with his comments that the dollar is too strong. Since his election into office, officials in his administration have begun to make similar comments about a need for the end to a several decade long policy of officially pushing for a stronger U.S. currency. Treasury Secretary nominee Steve Mnuchin has been the most vocal about the issue so far:
“The strength of the dollar has historically been tied to the strength of the U.S. economy and the faith that investors have in doing business in America. From time to time, an excessively strong dollar may have negative short term implications on the economy.”
Analysts who have weighed in on the matter believe that the new administration is serious about abandoning the policy begun in the United States by former President Bill Clinton. Bank of America Merrill Lynch David Woo opined:
There’s no question that the Trump administration would not want a strong dollar. A strong dollar does nothing good for whatever Trump is basically trying to do. Yes the U.S. fundamental story is bullish for the U.S. dollar, but the problem here is they actually don’t want a strong dollar.”
These comments from President Trump and the incoming Treasury secretary are roiling more than just foreign capitals like Beijing who fear a race to the bottom in a new currency and possible trade war. A volatile and rising dollar impacts the economic well-being of the emerging market countries. As their currencies gain against a weaker dollar, their exports to the U.S. suffer, creating long lasting ramifications for the rest of their economies. Individual investors fear that their investments may be “Trumped” by the new policies.
The dollar index has increased by as much as six percent since the election, though it began to retreat in the face of comments such as these earlier in the month as this chart shows:
Brown Brothers Harriman Chief Foreign Exchange Strategist Marc Chandler claimed:
“This is the first time we have a president-elect say the dollar has gone too far. He’s saying things and doing things that no president has ever done before.”
President Trump is blaming the Chinese and their currency manipulation for the overly strong American dollar:
“Our companies can’t compete with them now because our currency is too strong. And it’s killing us.”
In the past, American Presidents have avoided intervening verbally in the dollar either to the upside or the downside. The policy for a strong dollar has existed since Treasury Secretary Robert Rubin under President Clinton first articulated it. Administrations have always stood by this policy verbally even as the strength of the currency has caused headwinds for the U.S. economy and American exports abroad.
Theresa May Goes to Washington To Play Her Trump Card with Informal Trade Talks
Even as President Trump has fired his opening rounds in the currency and possible trade wars, he has extended a hand of friendship to British Prime Minister Theresa May by inviting her to be the first foreign leader honored with an Oval Office White House visit. This coincides with May and her cabinet preparing to begin trade negotiations with other countries not inside the European Union.
Prime Minister May will be going to Washington this very week to meet with President Trump. The newly crowned American administration is already laying out the groundwork for a new trade deal with the U.K. Both he and his team have indicated that Trump wishes to come to terms on an early trade deal with the British. White House Press Secretary Sean Spicer stated at his first press secretary briefing Monday:
“We’ve always had that special relationship with Great Britain. We can always be closer.”
Prime Minister May has declared her vision and intention to see Britain become the world’s foremost champion on global trade as it was during the days of the British Empire. She has set her sights on new accords with several nations already. These include the United States, Australia, China, and New Zealand. The British Trade Secretary Liam Fox has started informal and unofficial talks with over a dozen nations on reducing or eliminating barriers to trade already.
European Union Threatens Britain for Starting New Trade Agreement Talks Early
Only Monday the European Commission underscored its earlier warnings that treaties prohibit the United Kingdom from doing anything more than discussing trade deals in vague and general terms with nations that are not within the EU before the country has departed from the union. European Commission spokesperson Margaritas Schinas told Brussels’ reporters:
“There’s nothing in the treaties that prohibits you from discussing trade. Countries can not hold official negotiations on formal trade agreements while still members of the EU.”
London-based Global Counsel Chief Economist Gregor Irwin argued the same point, stating:
“EU rules mean the U.K. cannot legally begin negotiating a trade deal with the US before the U.K. leaves the EU.” Opposing the EU would mean “further souring the relationship with Brussels just as the Brexit negotiations are starting.”
What will be interesting to see is how these “informal” trade talks between Prime Minister May and President Trump will go. She is desperate for a strong bolstering position in hand when she starts her Brexit talks with the EU to prove there is life after leaving the European Union. It is unclear what she brings to Washington to offer the new president besides an official state visit to Britain and prestigious stay at Buckingham Palace. Fortunately for May and the Brexit agenda, Trump loves pomp and circumstance, and his mother was Scottish.
HSBC, UBS, and Goldman To Move Jobs From the UK in First Banking Brexit Blow to London
London has been worried since the results from the Brexit vote were announced that it might lose its great stature it enjoys in finance, which easily makes it the unrivalled main financial center of the European continent and a peer with world leading center New York. For months leading up to and since the Brexit June referendum, various banks and financial firms have warned that they would pack up some of their employees and move them to other rival financial centers in Europe (or even New York) if the passporting rights to the European Union were lost.
Now, three of the biggest and most important financial firms on earth have announced they are moving some of their staff in what is a major blow to the venerable “city of London” financial district. The largest bank in Britain and Europe HSBC, as well as the largest Swiss Bank UBS, are both warning they may both move around 1,000 jobs from London in order to avoid the anticipated financial dislocations which they feel will be created as Britain departs from the EU.
Goldman Sachs, one of the most important American financial firms and among the five largest banks in the U.S., has similarly warned it is contemplating cutting its London-based staff in half. They would relocate 1,500 employees to continental Europe, especially to German financial center Frankfurt, where as many as 1,000 of those staff members likely will be going. Other important operations they may move to New York City where they are based.
HSBC Chief Executive Officer Stuart Gulliver announced that the world’s largest bank by balance sheet will be moving its staff that generates approximately a fifth of its British-based trading revenue over to Paris where they already have a large and important subsidiary established. He revealed to the World Economic Forum Reuters reporters:
“We will move in about two years time when Brexit becomes effective.”
Further bank announcements like these are anticipated over the coming months as they make their final plans for the ways in which they will adapt to the imminent “hard Brexit” Prime Minister Theresa May has promised. Ongoing instability in the world which continues to unfold is all the reason you need to insure and protect your retirement accounts with gold. Click here for updated gold prices and charts.