- EUR/GBP declines as the Euro struggles after Trump threatened additional tariffs in response to EU's retaliatory measures against the US.
- Investor caution persists as the Greens party’s Brantner refrains from committing to support Germany’s plans for increased borrowing.
- The UK RICS Housing Price Balance fell to 11% in February, marking its second consecutive decline.
EUR/GBP continues its losing streak for the second straight day, trading near 0.8390 during European hours on Thursday. The currency cross remains under pressure as the Euro (EUR) struggles amid deteriorating market sentiment following US President Donald Trump’s additional tariff threats in response to the European Union’s (EU) retaliatory measures against the United States (US).
Investor caution persists as Germany’s plans for increased state borrowing face fresh obstacles. On Wednesday, Franziska Brantner, co-leader of the Greens party, refrained from committing to a deal, while the far-left party filed another legal challenge.
Meanwhile, election winner Friedrich Merz is pushing to implement debt reforms and create a €500 billion ($545 billion) infrastructure fund before the current parliament dissolves. However, the success of these initiatives depends on securing support from the Greens and overcoming potential legal challenges, according to Reuters.
Adding to concerns, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel warned in a BBC interview on Thursday that US trade tariffs on the EU could drive Germany into recession this year.
UK Prime Minister Keir Starmer remains optimistic that Britain can avoid US tariffs on steel and aluminum, advocating for a "pragmatic approach" in negotiations while keeping all options open. Unlike the EU, which has swiftly retaliated against the tariffs, the UK has reaffirmed its commitment to trade discussions with Washington.
Meanwhile, the UK’s 10-year gilt yield surged to 4.68%, the highest level in two months, as expectations mounted that the Bank of England (BoE) will maintain elevated interest rates for an extended period. Traders now anticipate only a 52 basis point (bps) rate cut in 2025, scaling back previous forecasts for more aggressive easing. Investors will be closely watching Friday’s UK monthly GDP data for January, which could offer further insights into the country’s economic outlook.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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