The American economy continues to flex its muscles, posting growth figures that defy the doom-mongers. But for the British exporter, the strong dollar is a double-edged sword. While it makes US imports cheaper, it crushes the competitiveness of UK goods stateside.
The Bank of England is watching gilt yields nervously, knowing that a rate hike to defend sterling could choke off the domestic recovery. Meanwhile, capital is flowing into dollar-denominated assets, a familiar pattern that leaves the UK exposed. The fiscal hawks are sharpening their knives, arguing that government spending is fuelling inflation without addressing the structural deficit.
In the City, traders are betting on volatility. Brexit’s legacy of reduced trade friction with Europe is being undone by the currency markets. The Chancellor must navigate these treacherous waters without a compass.
The bottom line: Britain’s export sector is paying for America’s strength, and Threadneedle Street may soon be forced to act.
