Market Recap:
Money markets may move this week as investors sift the fallout from the EU/US trade deal
Currency’s shift following tariff deal:
After a relatively subdued week markets will be anxiously mulling the impact of the trade talks between the US and the EU which took place in Scotland yesterday. The talks resulted in a deal which imposes a 15% duty on most EU imports to the US, half the threatened rate. The deal averts a damaging trade war but has left some European leaders and economists disappointed. The repercussions could drive money market volatility this week as investors react to the news.
The risk of 30% tariffs, due to be imposed on 1 August, had persuaded the European Central Bank to leave interest rates unchanged at 2% at its meeting last week. The euro strengthened slightly against the dollar on the back of the decision, trading just below its highest level since 2021. It dropped back in early trading on Monday after the trade deal details were announced.
The pound fell against both the dollar and the euro last week, amid concerns over the UK’s faltering economy. Sterling is now down nearly 2.5% on the euro in the last month and 2.12% against the dollar.
Bank of England may prioritise growth:
The UK’s lacklustre performance means traders are increasingly expecting a 25 basis point rate cut next month, with perhaps another to follow later in the year. They think the Bank of England (BoE) will look to bolster the economy rather than focusing on inflation.
In the US, the Fed is expected to leave rates unchanged at 4.25% to 4.50% this week as caution dominates sentiment among policymakers.
How could this effect your business?
Trade concerns, interest rate decisions and economic performance can create uncertainty, leading to money market volatility and fluctuations in exchange rates.
Coming Up:
As well as the Fed’s monetary policy decision, expected Wednesday, the week ahead will also see the release of inflation data in France (Wednesday), Italy and Germany (Thursday). Inflation drives exchange rate fluctuations by making goods and services more or less expensive and subsequently reducing or increasing demand for currencies.
