Eurozone market update
EUR/USD broke back above the psychological 1.10 level on Wednesday London trading as market participants continued to favour the common currency over the traditional safe-haven, the US dollar.
Fears that the tariffs could send the US economy careering into a recession drove a similar pattern in bond markets, with German 10-year bunds far outperforming their US equivalent - the yield spread between the two widened by around 45 basis points at one stage.
As mentioned, this move reversed as the headline of the tariff delays hit the newswires, and EUR/USD is actually now not trading too far away from pre Liberation Day levels.
We didn’t see much of a reaction in the euro to Wednesday's news that the EU had agreed upon a set of retaliatory tariffs aimed at the US. 25% duties will be placed on select imported goods from 15th May, encompassing all manner of thing from almonds to yachts.
Yet, as this only amounts to around 6% of US goods imported in the US, we see it as nothing more than a symbolic gesture.
Clearly, the EU is leaving the door wide open to negotiation, and we think that Trump will oblige. Whether these talks will be successful or not is a completely separate point.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
