US Tariff War Sparks Pound Surge and Wall Street Decline

The pound has risen to a four-month high against the dollar as fears of a US recession deepen following President Donald Trump’s trade policy announcements. Sterling edged up by 0.1pc on Tuesday, surpassing $1.30 for the first time since November. This resurgence in the pound coincides with growing uncertainty surrounding America’s economic performance.

Scott Bessent, the US Treasury Secretary, highlighted these concerns over the weekend, cautioning there are “no guarantees” that the country will evade a recession. However, during a more optimistic statement on Tuesday, he reaffirmed the fundamental health of the US economy. Meanwhile, President Trump has doubled down on his commitment to introduce comprehensive steel and aluminium tariffs starting 2 April, with no exemptions for trading partners.

Anticipation of looming economic turbulence signals both the Bank of England and the US Federal Reserve may choose to hold interest rates steady in upcoming meetings. Analysts suggest Trump’s tariffs will have minimal direct impact on the UK, and Labour leader Sir Keir Starmer appears focused on maintaining a strategic stance to ensure the option for exemptions remains open if necessary.

Investor sentiment showed growing apprehension, leading to the most significant US stock sell-off on record. Wall Street has felt the pressure, with notable sectors such as technology taking major hits. Bank of America’s latest fund manager survey revealed that investors are turning away from US markets, favouring European and British stocks instead. This move reflects efforts to shield portfolios from the potential aftershocks of a US economic downturn.

The S&P 500 has fallen over 8pc in the past month, with Tuesday alone seeing a 1.1pc decrease. The technology-driven Nasdaq also experienced a sharper drop of 1.6pc. Some of the largest US tech stocks, which have leveraged significant gains throughout the last two years, have taken a hard hit. Notably, Meta sank by 5pc during trading, while Tesla continues to feel backlash, resulting in its shares plunging by 35pc over the last month. Nvidia and Palantir Technologies have also suffered substantial monthly losses of 15pc and 32pc, respectively.

This climate of market decline is being fuelled by the growing scepticism surrounding “American exceptionalism,” according to Bruno Schneller, a managing partner at Erlen Capital Management. A cocktail of recession fears, stagflation risks, and heightened trade tensions has driven optimism among US fund managers to its lowest point since November 2023. As investors look elsewhere, European stocks have reaped the rewards, with investments in eurozone companies rising to the highest levels in over two years.

The fallout from President Trump’s stance on tariffs continues to rattle markets, leaving Britain potentially better positioned as the US grapples with its slowing economic momentum. For now, investors appear unconvinced that the world’s largest economy can avoid an impending recession.