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A trade war threatens to burst to the surface this week.
US President Donald Trump’s sweeping package of trade tariffs sent sterling to its lowest level against the euro in eight months on Friday. The US dollar was able to stem its losses on the back of strong jobs data, but serious question marks remain about its economic path, particularly with China announcing retaliatory tariffs in response to “unilateral bullying”.
Last week was one of those chaotic, unpredictable events we so often warn about. In just three days, GBP/EUR fell by more than three cents, while GBP/USD somehow ended play almost unchanged from the week prior, despite experiencing an almost 2% surge on Wednesday.
Far from being cowed by the market response, Trump doubled down on his controversial gambit. “My policies will never change”, the president said before adding “this is a great time to get rich”. Millions of Americans with battered pension funds, trading partners and many small businesses around the world will find it hard to stomach his optimism.
The International Monetary Fund (IMF) warned that the tariff package posed a “significant risk” to global trade. Stock markets certainly agreed. On Wall Street, the S&P 500 fell by another 3% as China’s response (amounting to an identical 34% levy to the one imposed by the US) pointed to a massive trade war. Early signs from Asia this morning point to the rout extending into this week.
The price of Brent Crude, a key indicator of economic activity, tumbled a further 7.5% to below $65 per barrel. Some market analysts believe commodity markets are actively pricing in a global recession, an eventuality that seems altogether likelier than a few short days ago.
This week will undoubtedly be dominated by tariffs once again. A few economic events promise to divert attention and contribute to yet more volatility. The UK reports February’s GDP data on Friday, while the US dollar will be impacted by Federal Reserve minutes and inflation figures on Thursday afternoon.
If all this has merely served to pique your interest, you’ll be able to read our April-June Quarterly Forecast in just a few days. Be sure to grab your copy to read detailed analysis of how all this could impact your profits and bottom line, as well as potentially mark a new chapter in global history.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: A rollercoaster ride
Sterling could do little but hope to weather the worst of last week’s storm. Wild swings dominated trading, which meant the pound was well up on its rivals on Wednesday but sunk low by Friday afternoon. It would be sensible to expect more volatility this week – the issue of tariffs is not going away anytime soon.
GBP/USD: the past year
EUR: Steeling itself for war
European leaders promised retribution for Trump’s tariffs, but that hasn’t helped the euro find solid ground. A powerful surge against the pound was tempered by a similarly vicious fall against the US dollar. A trade war is good for nobody, not least the euro.
GBP/EUR: the past year
USD: Tariffs cloud Fed’s direction
Last week was bewildering for everyone, but perhaps none more so than the Federal Reserve. Jerome Powell spoke on Friday and provided similar analysis to the IMF: tariffs would be inflationary and hurt growth. The real headscratcher here is how to balance the need for a growth jumpstart with prices pressures, sure to rise with tariffs in place.
EUR/USD: the past year
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