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Trump’s tariffs trigger trade tensions

Trump’s tariffs trigger trade tensions

Sterling was caught in the doldrums yesterday, with no economic data to drive trading and confidence in the domestic growth outlook remained weak. Brexit concerns persist, especially given the negative impact on potential investment and growth. The House of Lords handed the government another defeat over a meaningful vote on the EU withdrawal bill. Fresh speculation emerged that a Brexit deal would not be finalised until late 2018 given disagreement on the Irish border issue.

Sterling remained trapped below 1.3250 against the Dollar and the Euro strengthened to the 1.1400 area. The Pound is holding steady despite risk aversion moves.


The Euro was confined to narrow ranges with uncertainty stifling activity. The Bundesbank stated that the German economy should rebound after a weak first quarter, although the pace of growth was unlikely to match high growth rates seen over the past year. The impact on the Euro was limited as the bank’s 2018 growth forecasts had been lowered on Friday.

European Central Bank (ECB) Council member Vitas Vasiliauskas commented that European interest rates could change in Autumn 2019. Concerns surrounding the German coalition and reports that the Bavarian CSU could defy Chancellor Merkel and impose tougher border controls hampered Euro support.


Atlanta Fed President Bostic stated that he forecast three interest rate increases for 2018 and that a lot of work was being put into showing when the Fed Funds rate approached the neutral level given that the economy did not need any monetary stimulus at this point. The Dollar index made marginal gains with the Euro closing just above the 1.1600 level after hitting selling interest above 1.1620.

Trade tensions spiked higher again in Asian trading on Tuesday following President Trump’s warning that the US would impose 10% tariffs on $200bn of Chinese goods. In response, Chinese officials warned that there would be quantitative and qualitative measures if the US Administration pushes ahead with additional tariffs on China. The escalation in rhetoric triggered fresh fears surrounding global trade wars and there was a sharp decline in risk appetite during the session.

Data to watch:

02:30 AUD RBA Meeting’s Minutes
02:30 AUD House Price Index (QoQ) (Q1)
09:00 EUR ECB President Draghi’s Speech
09:30 EUR ECB’s Praet Speech
12:00 USD Fed’s Bullard speech
12:00 EUR ECB’s Praet Speech
13:30 USD Housing Starts (MoM) (May)
13:30 USD Building Permits (MoM) (May)
n/a NZD GDT Price Index
n/a NZD Westpac consumer survey (Q2)

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