By Nick Harrison
US President Donald Trump announced overnight on Tuesday that he had confirmed the imposing of tariffs on the US’s top 3 trading partners – Canada, Mexico & China.
25% tariffs were imposed on Mexico and Canada, with China having theirs doubled from 10% to 20%. This caused a stock market sell-off with confirmation that a trade war is now officially on the cards. The three countries all retaliated with tariffs of their own and fighting talk about how they were going to go about their business with the US moving forward.
It seems Trump’s policy of separating itself from the global trading network and his insistence that production shifts back to the US is now playing out. The EU will apparently be next and as a result, the Dow Jones & Nasdaq indexes fell on Monday and Tuesday with share prices for cars being the worst hit. General Motors, VW & Mercedes all have factories in Mexico which all sell to the US, so will all be greatly impacted by this move.
Of course, we had the disastrous meeting with President Trump and Ukrainian President Zelesnky just a few days ago and this caused major concern in the markets as the war in Ukraine entered a highly uncertain phase with the US now backing away from the support it has given the country. Trump again is dropping other countries from his mandate as he focusses on building the US economy within and not relying on or supporting other countries that have been trading partners and allies for many years. That being said, his Congress speech last night implied both Ukraine & Russia are both pushing for a peace deal, so let’s hope this plays out positively.
So, what has this all meant to the currency market ? Well, the USD against the Euro has lost around 2 whole cents in just the first few days of March and has also lost a couple of cents against Sterling as investors see Trump’s tariff moves as a negative development for the US economy. The Pound against the Euro has lost a little bit of ground amid these volatile trading times, so investors are certainly having a frantic time looking at where to put their money.
Economic data seems to have taken a back seat for the timing being then as the drama plays out. This afternoon sees the ISM Services PMI released in the US at 3pm, but the main focus on this week will now turn to Europe tomorrow as the summit of the EU leaders roles out. It’s safe to say the EU leaders have a lot to talk about with the main topics being aid for Ukraine, strengthening Europe’s defences and geopolitical strategy.
Also tomorrow at 1.15pm we see the release of the European Central Bank’s interest rate decision. They are expected to cut their rate, so amidst all this market turmoil, it will be interesting to see how the market reacts. The ECB conference follows at 1.45pm, so let’s hear what ECB President Lagarde has to say.
The week finishes with more activity in the States as the monthly Non-Farm Payrolls figure is released. Job creation is an important leading indicator of consumer spending which accounts for a majority of overall economic activity so investors, as always, will look closely at this figure.
A volatile time for Foreign Exchange then, so do please reach out to the team at A Place in the Sun Currency who can keep you up to date with the latest market movements and help you make informed decisions about when to cover your currency exposure.
Economic Data this week
TODAY
US ADP Non-Farm Employment Change – 1.15pm
US ISM Services PMI – 3pm
THURSDAY
Euro Summit – All Day
ECB Monetary Policy Statement – 1.15pm
ECB Press Conference – 1.45pm
US Unemployment Rate – 1.30pm
FRIDAY
US Average Hourly Earnings – 1.30pm
US Non-Farm Payroll Employment Change – 1.30pm US Unemployment Rate – 1.30pm