Pound V euro: GBP exchange rate drops as trade war fears ease
THE POUND to euro exchange rate has seen a -0.4 per cent drop today, due to reduced fears of a trade war breaking out.
Monday’s pound to euro exchange rate gains were largely down to the weak US dollar pushing up demand for Sterling, but this influence has since faded.
The primary focus has been on a possible de-escalation of the tough-talk on trade between the United States and China, which saw a marked escalation at the end of last week.
US President Donald Trump confirmed that tariffs would be imposed against the import of Chinese steel and aluminium, which was met with proposed counter-tariffs from China.
Since then, however, both sides have shown signs of a possible compromise deal being in the works, which has made the US dollar a more attractive currency as a result.
The recent escalation may have simply been a negotiating tactic that will end in a compromise
On China’s side, Premier Li Keqiang has taken steps to preserve the trading relationship by offering US companies easier access to the Chinese marketplace.
Likewise, US Treasury Secretary Steven Mnuchin has opened the door to a possible reduction in the scale of anti-Chinese measures.
He said: “We are going to proceed with our tariffs.
“We're also working on investment restrictions, but we're simultaneously having negotiations with the Chinese to see if we can reach an agreement.
“We're having very productive conversations with them.
“I’m cautiously hopeful we'll reach an agreement, but if not we are proceeding with these tariffs.”
Looking at the latest development, JPMorgan analysts said: “The recent escalation may have simply been a negotiating tactic that will end in a compromise.
“This would be consistent with the pattern around the steel/aluminium tariffs and is the interpretation that many market commentators are favouring.”
Lagarde: Populism and protectionism threaten Eurozone
On the other side of the pairing, the euro has risen against the pound despite a range of Eurozone confidence measures printing negatively this morning.
Reported levels of business confidence, industrial sentiment and economic sentiment have fallen in March, in most cases by more than expected.
Later this week, pound to euro exchange rate losses could grow if UK GDP growth rate figures show that economic activity slowed in the last quarter of 2017.
The euro may be able to extend its gains in the meantime, if the GfK consumer confidence reading on Wednesday morning shows growth for April’s forecast.