Has Trump turmoil altered the BoE playbook?

Here is an interesting take from an economist we follow, which may explain the current events occurring from across the pond..

Donald Trump wants US interest rates lower, but the Fed are a separate entity and are following their own rules, which at the moment do not align with the President. Why does Trump want lower interest rates in the US?

The US has $7 trillion worth of debt that needs to either be paid or refinanced in 6-months time. The current rate to refinance debt is high at 4% and not something that is 'comfortable' to act upon (we have all seen what has/is happening in the UK when it comes to Labours' actions on debt).

To get interest rates down, markets need to show weakness to growth. Investors play a huge part in this as they trade on risk sentiment. If investors stop buying stocks and move into bonds (exactly what we are witnessing), the Fed will have no choice but to lower interest rates. 

Treasury Secretary Scott Bessent has recently said "We are trying to get rates down. The market and the economy have become hooked to excessive government spending and now there is going to be a detox period"

So, it looks like Trump is purposefully causing 'drama' to tank the stock market to force the Fed to cut interest rates. A short-term pain for a long-term gain strategy perhaps.

If this is true, the USD will probably continue to get weaker in the near-term versus all currencies, providing further great opportunities for £-$ buyers as the year progresses.

The 360 change of monetary and fiscal policy stance from Germany changes the Euro's value and fortunes, as it directly impacts EU inflation and therefore interest rates (likely to be held which will strengthen the single currency). The Euro near and long term may get stronger from current levels.

For the UK/£, it's more tricky. Growth and debt is an issue, as is stagflation fears. Our best guess is that the Bank of England will keep interest rates unchanged for a few months as the global dust settles and more clarity is provided after the NI hike comes into force. This will keep GBP relatively stable near-term, but longer term we see problems ahead..