Markets to keep close eye on scale of impact of tariffs on Euro Area economy
The euro briefly sank below the 1.14 level on the dollar last week (before rebounding on Friday), as markets continued to cast a critical eye on the details of the US-EU trade deal.
While the 15% tariffs are clearly nowhere near as high as the 30-50% threatened by Trump in recent months, markets and European countries were clearly hoping for a better deal that would both offer greater concessions and bring the baseline levy closer to the 10% that officials had pushed for during negotiations.
Market participants will now be attentive to the scale of the impact of the tariffs on the Euro Area economy, although we’ll have to wait until the August PMIs (23/08) for the first real read of this.
So far, at least, economic activity is holding up relatively well, with last week’s Q2 GDP report (1.4%) and July inflation figures (2%) both surprising to the upside.
This should take pressure off the ECB to lower rates again, and markets now see little more than a 50/50 shot of another cut from the Governing Council before the end of the year.
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.
