Money markets rewarded European currencies after President Trump retracted his tariff threat on Nato allies
President Trump retracted his threat to impose tariffs on imports from eight European countries over the Greenland standoff, leading to slight gains for the euro and pound. The US president said that the framework for a deal over the territory had been agreed, though Denmark insists that the sovereignty of Greenland is not up for debate. For the moment, the threat of a trade war between the US and Europe has receded, but tension remains and tariffs cannot be discounted in future.
For now, markets breathed a sigh of relief at the news. The euro pushed on and has gained nearly 0.25% against the dollar over the last month, while the pound climbed to its highest level against the dollar for three months. The pound also edged higher against the euro after better-than-expected economic data in the UK.
Economic metrics send mixed messages
Data from Europe’s major economies painted a mixed picture last week. In the eurozone, Germany’s manufacturing and service sectors both beat predictions, while business performance in France dipped. Figures show that the UK economy unexpectedly grew by 0.3% in November. In the US, a resilient labour market and stubborn inflation make a near-term interest rate cut unlikely.
The week ahead:
All eyes will be on the US Federal Reserve (Fed) on Wednesday for its latest interest rate decision. It’s highly likely that the Fed will keep interest rates unchanged at 3.75% for the time being, despite pressure from President Trump for faster, deeper cuts. Trump’s nomination for new Fed chairman, also expected shortly, could create volatility in money markets as investors digest the likelihood of a more dovish approach to monetary policy.
In Europe, important metrics expected this week include business climate data in Germany (Monday), and consumer confidence reports in France (Tuesday), Germany and Italy (both Wednesday). Economic sentiment in the eurozone as a whole will be the focus on Thursday, while GDP figures for major EU economies will be published on Friday. It’s a quiet week in the UK but house price data on Friday may give clues to the state of the economy.
