In a move that has sent ripples through the bond market and raised eyebrows in the Square Mile, Donald Trump has selected Todd Blanche to lead the Justice Department. For those of us who have spent decades watching the ebb and flow of power in Washington, this is not merely a cabinet reshuffle. It is a signal: the executive branch is consolidating its grip, and the markets are taking note.
Let us start with the bottom line. The dollar has firmed against a basket of currencies, gilt yields have edged higher, and the FTSE 100 has opened with a cautious tone. Why? Because a Trump-aligned attorney general suggests a legal environment that is, shall we say, accommodative to the president's agenda. Investors are pricing in a higher probability of tariffs, deregulation, and perhaps a more confrontational stance with China. All of this is inflationary in the short term, hence the uptick in yields.
Blanche, a former federal prosecutor and longtime Trump ally, is not a conventional pick. He is known for his aggressive defence of executive authority and his willingness to challenge congressional oversight. Critics will call this a threat to the rule of law. I call it a calculated bet on efficiency. Trump is signalling that he wants a legal system that does not obstruct his economic agenda. Whether that is good for the country is a separate question. For the markets, it reduces uncertainty, which in turn reduces the risk premium attached to US assets.
But let us not be naive. This appointment comes at a time when the US fiscal position is already precarious. The national debt is approaching $34 trillion, and the deficit is running at over $1.5 trillion a year. An attorney general who is seen as a political enforcer rather than a independent guardian of the law could spook foreign buyers of US Treasuries. China and Japan, the largest holders, are already reducing their exposure. A loss of confidence in the rule of law could accelerate capital flight out of dollar-denominated assets.
That is the macro picture. On the micro level, this is a classic power play. Trump is centralising authority in the executive branch, much like he did during his first term but with more experienced players. Blanche will likely be tasked with protecting Trump from the horde of legal challenges that are pending, from the documents case to the January 6th investigations. This is not just about policy. It is about survival.
For British investors, the implications are twofold. First, a stronger dollar makes US assets more attractive, potentially drawing capital away from London. Second, a more aggressive US trade policy could disrupt global supply chains, hitting UK exporters. I would be watching the GBP/USD pair closely. A break below 1.25 would be a warning sign.
And what of the Bank of England? Governor Bailey will be watching this with a mixture of concern and, dare I say, envy. The BoE covets the independence that the US Federal Reserve enjoys, but a Trump-aligned DOJ could put pressure on the Fed to keep rates low. That would be a nightmare for the fight against inflation. We have already seen the Fed push back against political interference, but the legal landscape is shifting.
In conclusion, this is not a routine appointment. It is a strategic move designed to reshape the American state. The markets are right to be nervous. Volatility is the price we pay for political change, and this change promises to be seismic. As always, the bottom line is this: protect your capital, diversify your holdings, and keep a close eye on the yield curve. The game has changed.
