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European currencies rebounded on Monday as fears of trade tariffs diminished.
The euro had its best day in quite some time on Monday, fuelled largely by reports that US president-elect Donald Trump is considering softening his policy on trade tariffs. GBP/USD also advanced by more than half a cent over the course of the day.
Increased consumer price inflation (CPI) in Germany also helped the euro’s cause. Germany’s headline inflation came in at 2.6% in December – its highest level in 11 months. The new data served as a reminder that the European Central Bank (ECB) is unlikely to be reckless in reducing interest rates further.
The bigger development was certainly the tariffs, however, given this has been the dominant source of EUR/USD pressure for two months. After the report first emerged in the Washington Post yesterday, markets quickly took it as a sign that their flight towards the US dollar had been overblown. European currencies rebounded and US stock markets went on to enjoy a blockbuster day.
A word of caution, though. As some commentators pointed out, the first Trump administration had form in manipulating markets (and foreign governments) when it felt things had moved too strongly in one direction. The new reports may therefore be more reflective of a short-term pivot rather than any significant policy changes.
Staying in North America, Canadian prime minster Justin Trudeau has announced he will resign after almost ten years as leader of the Liberal party. The Canadian dollar was broadly stable against rival currencies after the announcement late on Monday afternoon.
Trudeau has come under intense pressure since the election of Donald Trump. His popularity has slumped to historic lows and his resignation triggers a party leadership contest before a general election, which must take place by October.
In the UK, the Halifax house price index fell by 0.2% in December, dashing forecasts of a steady rise. On an annual basis, house prices were up by 3.3% last month, also well below the expected level.
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GBP: Pound faces dry January
GBP/USD recovered the losses it has recorded since the start of the year yesterday. Unlike the euro and the US dollar, sterling must wait until next Wednesday (15 Jan) for its first macroeconomic release of note, which comes in the form of December’s inflation report.
GBP/USD: the past year
EUR: Riding the free trade wave
GBP/EUR treaded water as both the pound and the euro made gains at the expense of the US dollar yesterday. While the euro could bask in its success, investors will be watching the Trump camp carefully for indications of his next move on tariffs. Several key eurozone nations report inflation figures today, adding to the sense of precariousness for the single currency.
GBP/EUR: the past year
USD: Dollar samples volatile future
With a capricious Donald Trump set to return to office, Monday gave us a potential preview of the next four years. In one tweet, the president-elect is able to change market direction, even if narratives have been well established. The US dollar (and indeed global currency markets) can expect much more volatility to come.
EUR/USD: the past year
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