Trump may announce a US-UK trade agreement, and the British pound and FTSE 100 futures rose in response

The Zhitong Finance App learned that US President Trump is expected to officially announce the trade agreement between the US and the UK later this Wednesday. Driven by this expectation, the British pound exchange rate and the British FTSE 100 stock index futures price both rose, and market sentiment improved markedly.

Trump posted a post on social media platforms on Tuesday evening local time, implying that a “major trade agreement” will be implemented. A number of foreign media followed up reports saying that the partner of the agreement was Britain. After the news was released, the exchange rate of the British pound against the US dollar rose by 0.5% in the short term, hitting a high of 1.3356 in the intraday period. Bank of Singapore foreign exchange strategist Moh Siong Sim's analysis pointed out that although the details of the agreement were not disclosed, it constituted a “marginal benefit” for the British pound because the market expected an improvement in economic and trade relations between Britain and the US.

Figure 1

Since the Trump administration launched a new round of tariff attacks against many countries on April 2, the continued weakening of the US dollar has become the main theme in the foreign exchange market. The market is concerned that the US economy may face the risk of recession and increased inflationary pressure. The Bloomberg US dollar index has accumulated a cumulative decline of about 4% during the period. On the stock market side, major global indices are also under pressure: the UK FTSE 100 index fell 0.6% over the same period, the Hang Seng China Enterprises Index fell more than 3%, and the S&P 500 index fell 0.7%.

Figure 2

Stimulated by news of the US-UK trade agreement, FTSE 100 stock index futures rose 0.7% on Wednesday. The market generally expects that the agreement will ease the pressure on the US to impose tariffs on British goods.

Kimmy Tong, an international global market and foreign exchange strategist at Everbright Securities, said that if the agreement is implemented, it will directly benefit British exporters in the financial, automotive and energy sectors in the short term. She further pointed out that the current FTSE 100 index's price-earnings ratio is only 12.6 times, which is significantly lower than 15.5 times when Trump first launched a trade war in 2018, and its valuation appeal is outstanding.

Mahjabeen Zaman, head of foreign exchange research at ANZ Bank Group, warned that the market needs to pay attention to the exemplary effects of the agreement — its terms may be designed or used as a reference for subsequent negotiations between the US and other countries.

Meanwhile, the Bank of England will announce its latest interest rate decision on Thursday, and the market generally expects to cut interest rates by 25 basis points. Traders will pay close attention to whether the central bank sends signals of further easing in the future. Especially in the context of rising expectations of trade agreements, monetary policy may become a new focus of fluctuations in the British pound.

Bank of Singapore strategist Sim added, “In addition to the extent of interest rate cuts, the Bank of England's statement on inflation prospects and interest rate paths is just as important. If it sends a signal to speed up the easing cycle, it may further strengthen the market's optimistic expectations for the British pound.”

Although the US-UK trade agreement has yet to be implemented, the market is already pricing its potential impact. Some analysts believe that if the agreement can substantially reduce tariff barriers, it will help the British economy ease external pressure; the pace of adjustment of the Bank of England's monetary policy will become a key variable in the medium term trend of the British pound. Investors need to continue to pay attention to the details of the agreement text and the central bank's policy statements to judge the sustainability of market sentiment.