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European currencies benefitted from a better mood on Wednesday.
Improved risk sentiment helped ease the pressure on European currencies yesterday. A reduced threat of American trade tariffs (for Europe, at least) helped the euro build some momentum. The pound and the euro both advanced on the US dollar before seeing those gains scrubbed away in the afternoon session.
Currency markets reverted to a delicate mood of calm yesterday after the excitement of Trump’s inauguration. However, with key data looming for Europe on Friday, it is hard to predict whether this will extend even as far as the weekend.
Continental stock indexes enjoyed a bumper day on Wednesday. The Stoxx Europe 600 – a broad list of large companies across key industries – rose to a record high, as markets interpreted the incoming US administration’s position on trade as less aggressive than was feared.
In the world of economic data, Wednesday brought little to discuss aside from the UK government’s borrowing figures. Public borrowing increased by more than expected in December, reigniting fears that Britain was drawing closer to the stopgap laid out in the autumn budget.
After setting a deadline of 1 February for tariffs on Mexico, Canada and China, US president Donald Trump shifted his focus to Russia. In a social media post, Trump urged Vladimir Putin to “make a deal” to end the Ukraine war or face new trade restrictions. Trump had vowed on the campaign trail to end the conflict on the first day of his term.
Meanwhile, in Davos, Spanish prime minister Pedro Sanchez (who recently threatened massive taxes for foreign property buyers) unveiled a series of social media regulations to protect democracy. UK chancellor Rachel Reeves was also present, using her appearance to tout visa reforms designed to attract AI and tech workers.
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GBP: Pound withstands latest debt setback
Sterling navigated more bad news on the UK’s fiscal health with a strong showing yesterday. Questions still remain about government spending, so the pound’s position is still slightly perilous and could get worse before it gets better.
GBP/USD: the past year
EUR: Lagarde lauds “smart approach”
European Central Bank president Christine Lagarde said that Trump’s initial restraint on trade tariffs was a “smart approach”. It’s little wonder she would be supportive, given the euro’s recovery and the risks that tariffs would stall growth. Like everyone else, Lagarde knows how important it is for the euro to keep America onside.
GBP/EUR: the past year
USD: Bullish mood protects USD
The euphoria in American markets is helping to shield the US dollar from the less aggressive actions of the commander in chief. Despite respite on tariffs, the US dollar continues to benefit from a groundswell of positivity that likely has further to run.
EUR/USD: the past year
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