- EUR/GBP could face further depreciation as the Euro weakens amid an escalating US-EU trade war.
- President Trump threatened a 200% tariff on all European wines and champagne, raising global market concerns.
- UK economy is projected to have grown modestly by 0.1% in January, down from the 0.4% expansion seen in December.
EUR/GBP holds ground after registering losses in the previous two consecutive sessions, trading around 0.8380 during the Asian hours on Friday. The currency cross faced challenges as the Euro (EUR) depreciated against its peers amid an escalating trade war between the United States and the European Union (EU). US President Donald Trump threatened a 200% tariff on all European wines and champagne during Thursday’s early US session, sparking concerns in global markets.
Traders are expected to closely monitor Germany's February Harmonized Index of Consumer Prices (HICP), along with the UK’s January Gross Domestic Product (GDP) and factory data, set for release later in the day.
European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel warned that US tariffs on imported goods could push Germany, Europe’s largest economy, into another recession, worsening its economic struggles. "We are in a world with tariffs, so we could expect maybe a recession this year if the tariffs take effect," Nagel said on Thursday.
Traders will closely watch the UK GDP figures as the Bank of England (BoE) has expressed concerns over the economic outlook. In its February policy meeting, the BoE revised its GDP growth forecast for the year to 0.75%, down from the 1.5% projected in November.
The UK economy is projected to have grown modestly by 0.1% in January, slowing from the 0.4% expansion recorded in December. Meanwhile, monthly factory data is expected to show a decline for the first month of 2025.
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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