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There's a shadow not just over Greenland, but the European economy too
The gloves appear to be off in the latest threat to global peace and security – that’s his words – as on Saturday President Trump ramped up the pressure on Denmark, Europe and NATO to come to a deal for the peaceful handover of Greenland to the USA.
He announced that there would be an extra 10% tariffs on goods from eight European countries including the UK, Germany and France, potentially rising to 25% in the summer.
Europe is still considering its response but the mood seems more pugnacious than in its dealings with Trump’s White House last year. Some €93bn of tariffs on US goods and restrictions on US companies in Europe had been planned as retaliation, the EU’s ‘ant-coercion instrument, (ACI) but never put into operation last year as a trade deal, seen as highly advantageous to the USA, had been agreed. That now looks under threat.
This morning so far exchange rates have barely moved. Even so, it promises to be a highly charged week on the currency and stock markets. Often they go hand in hand, with the pound moving up and down in alignment with share prices. Today’s public holiday in the USA for Martin Luther King Jr Day is likely to mute the response for now.
With US economic growth far outstripping the rest of the G7, Trump is perhaps feeling relaxed about the impact of tariffs on the US economy, but for individual businesses the impact could be great. For the UK, the current economic picture will be revealed this week with most of the big numbers coming out, starting with unemployment and earnings tomorrow. While an interest rate cut at the start of February has largely been ruled out, there could still be an impact.
Last week the Australian dollar was in the ascendancy as the markets considered that it might be the first large economy to start raising interest rates. Over the past month it has gained 2% on the euro and others, and 1% on sterling.
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GBP: Pound looks vulnerable to Greenland tariffs
Early trading suggests sterling exchange rates are particularly vulnerable to the effects of President Trump’s threatened new round of tariffs. This was already a pivotal week for the pound, with a host of high-level data starting with unemployment and earnings early tomorrow, then inflation on Wednesday and PMI on Friday.
GBP/USD past year
EUR: A busy week for Europe
It’s still hard to gauge the effect on the euro of the news over the weekend, but the dials certainly seem to be twitching. Also today, we’ll get eurozone inflation shortly, and the ZEW Economic Sentiment Index tomorrow. It will also be interesting to hear ECB President Christine Lagarde speaking on Wednesday.
GBP/EUR past year
USD: Will dollar gain from global tension?
Early signs are that the dollar is sinking against most global and European currencies this morning. The normal pattern in times of economic or actual strife would be investors flocking to safe havens such as USD, but these are not normal times. (The gold price has followed the usual pattern and shot up to a new high this morning). The US markets are closed today for Martin Luther King Jr Day, but the big event will be GDP on Thursday.
USD/GBP past year
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