Potential May + Trump Deal "Could be Wildly Positive for Sterling" Against Euro and Dollar

• The Pound to Euro exchange rate is today quoted at 1.1724, the Pound to Dollar exchange rate is today at 1.2526.

There are potential currency implications of Theresa May’s much-anticipated meeting with Donald Trump on Friday, January 27.

All eyes are on the UK Prime Minister as she meets the newly-installed US President in his first official set-piece with a foreign leader. 

Having endured a strong second-half to January the British Pound’s ascent has since stalled - could moves here reignite the rally?

Those wanting a stronger Pound will be hoping that some upside impetus can be restarted by May’s visit and it is likely any such assistance will be provided by signs that the US is open to negotiating an improved trade deal with post-Brexit Britain.

“Sterling is still poised for stronger gains especially as Prime Minister May embarks on her trip to Washington.  In contrast to the twitter spat with Mexico, the U.K. and U.S. should enjoy a stronger relationship given President Trump's support for Brexit,” says Kathy Lien, Managing Director at BK Asset Management.  

Lien says she would not be surprised if May walked away with a promise for a healthy bilateral trade deal.

“If the two leaders were to talk of progress on this front, it could be wildly positive for Sterling,” says Lien.  

If the US becomes one of the first countries to announce a bilateral trade deal with Britain, Lien says it would be a vote of confidence for Brexit and force other countries to fall in line.  

Will it shield the U.K. economy from slower growth or recession?

“No, but it will be years before the UK formally exits from the EU and that is when they will feel the brunt of the pain. For the time being, the weaker currency and a friendlier relationship with the US should continue to support the economy,” says Lien.

So Far, So Good

May's first engagement in the United States was an address to the Republican Party Congressional Institute's Congress of Tomorrow retreat in Philadelphia.

Her address to the party - the first time a foreign leader has addressed the retreat - was warmly received with five standing ovations.

May hit the right notes with her audience - espousing traditional conservative views:

"I speak to you not just as Prime Minister of the United Kingdom, but as a fellow Conservative who believes in the same principles that underpin the agenda of your party. The value of liberty. The dignity of work. The principle of nationhood, family, economic prudence, patriotism - and putting power in the hands of the people."

Can May spark the same enthusiastic response from the Commander-in-Chief when they meet on Friday? 

She has hit the right ego-massaging tones so far it would seem:

"President Trump's victory - achieved in defiance of all the pundits and the polls - and rooted not in the corridors of Washington, but in the hopes and aspirations of working men and women across this land. Your party's victory in both the Congress and the Senate where you swept all before you, secured with great effort and achieved with an important message of national renewal."

But May knows that she is also playing to a home audience, one that is nervous of Trump's social policies; heightened by his recent views on the use of torture.

The meeting will be a balancing act of appearing to be no poodle to the United States while garnering the goodwill to put that much-needed trade deal in motion.

"Today is crucial for the Pound, the Prime Minister’s retort that “opposites attract” added to the warm welcome yesterday from Philadelphia and Republicans could set the pound on a stable course. The Reagan-Thatcheresque touch to this new geopolitical picture is hard to miss. Positive discussions are highly anticipated and a dialogue over progress and future development could forge true market dynamics," says Paresh Davdra, CEO of RationalFX.