On the first trading session since the swearing in of Donald Trump as the President of the United States, the UK’s blue chip index is struggling to gain traction. The immediate negative reaction from foreign exchange markets to Trump’s inauguration speech saw the US Dollar dented as the new leader of the free world struck a decidedly protectionist and nationalist chord. Subsequently, Sterling has recovered further from last week’s 3-month lows whilst the Euro reached a one month high.

As a result, we’ve seen the index unable to overcome a run of week-long falling highs. Due to the significant proportion of the UK 100 ‘s constituents earnings coming in the form of the embattled Dollar . One of the cornerstone sectors of the UK economy, the Banks, are trading in the bottom half of the table; in fact, three of the five biggest banks in the country remain in the top 10 underperformers of the day.

Why might these financial titans be suffering more than any other sector? Here are several reasons why:

First, the aforementioned Dollar weakness is impacting the foreign earnings of some of the UK banks, with Barclays, HSBC and Standard Chartered most heavily impacted by the languishing greenback. For HSBC and Standard’s predominantly Asian focused operations, a stronger Pound negatively affects their balance books, while Barclay’s large investment banking operations in the US (a factor that helped improve its Q3 earnings despite the UK’s vote to leave the EU) stand to decrease.

Second, the fact the Trump is yet to reiterate plans for the massive fiscal stimulus he pledged on the campaign trail is starting to raise some doubts as to whether he will follow through on these at all. Consequently, analysts and US Federal Reserve members alike are striking a more dovish tone, expecting the pace of rate hikes to perhaps lessen as a result. This has a negative implication for the margins of the UK banks that operate in the US (again, Barclays being impacted the most with the RBS also suffering). Furthermore, the President is also still to confirm he will be looking to repeal sections of the Dodd-Frank legislation that was passed in the aftermath of 2008, hindering banks’ ability to engage in riskier deals that warrant greater profit.

Finally, and perhaps most notably, is the rising uncertainty that surrounds the UK’s exit from the EU and what leaving the single market may mean for the Banks. Having only confirmed her intention to leave the economic area completely less than a week ago, already some of the largest institutions are preparing contingency plans to move employees to Frankfurt and Paris as a result of Prime Minister Theresa May’s plans for a Hard Brexit. The movement of some highest profile earners from London to other European financial centres may prove to have a significant impact on the UK economy, in which the services industry (and financial services in particular) comprises around 80% of GDP.

Add into the equation the announcement of the UK Supreme Court’s decision on the legality of the Government triggering Article 50 to begin official negotiations with the EU tomorrow (which, should it concur with the High Court’s ruling that parliamentary approval is needed, could see Sterling boosted further) creates an unattractive, uncertain environment for the banking stalwarts.

A combination of these three factors has seen UK Banks struggling to enjoy the the first session of the new US President’s term. Given the excitement and optimism that many in the sector felt after his election, today’s trading comes as a stark realisation that perhaps everything might not go their way in the era of Trump.

Henry Croft, Research Analyst, 23 January