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Another trade threat raised the stakes for the euro as tetchy tariff negotiations continue.
Sterling opened Monday on the back foot following one of the clearest indications yet that the Bank of England could cut interest rates at its next meeting. Speaking to The Times, governor Andrew Bailey highlighted “slack” in the labour market, which he suggested had worsened as a result of increased employer national insurance payments. When probed on rates, Bailey commented “I really do believe the path is downward”.
US President Donald Trump this weekend threatened to impose tariffs of 30% on goods from the European Union from 1 August, the new deadline he has set for trade negotiations. This followed European negotiators coming up empty in their quest to come to an agreement with the United States earlier in July.
Talk of trade could well be damaging for the euro, but it may also provide a lifeline for Britain’s battered currency. The pound recorded another losing week against the US dollar and the euro. Despite some semblance of stability returning to the ever skittish bond market, it was another week dominated by bad headlines for the pound and the UK economy more broadly.
Looking in more detail at the UK growth data, May proved a pretty dismal month for most sectors. A couple shoots of green could be found in a strong performance by the computing industry, yet two consecutive months of negative growth will have set alarm bells ringing in the Treasury (if they weren’t already, that is).
Sterling won’t have much time for a breather this week. On Thursday, June’s inflation print will be closely watched as the Bank position themselves to cut in August. Speaking of the Bank, Andrew Bailey will join Chancellor Rachel Reeves in the annual Mansion House speeches.
Aside from the German ZEW consumer study, the calendar is light for the eurozone. However, the question of trade will be burning hotter than ever after Trump’s social media blitz.
The US dollar will also be impacted by trade negotiations, except it has the added complexity of those discussions including several other major economies. Inflation, producer price inflation (PPI) and retail sales numbers provide more intrigue in a busy week across the Atlantic.
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GBP: A key week for rates
This week may prove decisive for the Bank of England’s next interest rate decision, scheduled for just under a month’s time. If a shrinking economy raises the odds of a cut, easing price pressures could make it a sure thing. Whatever happens, the pound is sure to be affected.
GBP/USD: the past year
EUR: Another twist in trade saga
European negotiators have taken a relaxed approach to trade talks. It now appears that strategy has backfired. Donald Trump’s 30% threat will add an added spice to ongoing discussions, but for the euro it also complicates the outlook after what has been an exceptional month or two against its rivals.
GBP/EUR: the past year
USD: Trump ditches the carrot
President Trump has ditched the carrot in favour of the stick. The European Union and Mexico were in his firing line over the weekend, but currency markets are used to his antics by this point. Whether the president does indeed “chicken out”, as the saying goes, will be the crucial question.
EUR/USD: the past year
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