Pound Showing No Signs of Slowing Down
- Feb 14
- 3 min read
GBP : Pound shows no signs of slowing down
President Trump's recent tariff threats were dismissed by sterling, which is expected to rise against the dollar and the euro for another week. Markets were taken aback by Trump's proposal to apply "reciprocal" tariffs starting in April, which would target VAT-paying nations like the UK.
There is much debate over whether VAT qualifies as a tariff, which increases market uncertainty worldwide. The USD is down 1% this week, on track for a fourth consecutive weekly fall, but FX traders are unmoved. Daragh Maher of HSBC observes that headlines about tariffs are no longer as influential on foreign exchange markets.
Trump's tariff threats were viewed by the FX market as USD-bearish, and traders were placing bets for a lenient approach prior to April. While GBP/EUR is still rangebound at €1.2000, the Pound's recovery versus the Dollar may reach $1.2600.
Because of Europe's trade surplus with the United States, tariffs may harm the Eurozone more than the UK, which could eventually strengthen the GBP/EUR exchange rate.
EUR : Correction likely to be restricted
Inflation worries were contained by benign US PPI components for core PCE, which resulted in lower US rates and a stronger EUR/USD before the tariff announcement. Markets found solace in the postponement, which allowed trading partners to make adjustments, such as increasing US LNG imports, lowering trade restrictions, or remaining stable.
It is anticipated that the EUR/USD correction would reach $1.0535/75 but not much more, with a more general trend toward $1.0000 still appearing to be the Q2 baseline. Additionally, the outperformance of Eurozone stocks has sparked talks about a global rotation into Europe. Nevertheless, there are no clear indications of this in the flows into the iShares MSCI Eurozone ETF, indicating that the EUR/USD rise would find it difficult to maintain gains over $1.0500.
USD : Dollar steady ahead of retail sales data
Lower US interest rates, hope that the war in Ukraine may stop, and uncertainty around a US reciprocal tariff package have all contributed to the dollar's small decline in Europe today. Markets had anticipated tariffs and a significant trade report from the Commerce Department in April. But there were worries that the news this week might bring about drastic changes. These worries were allayed by yesterday's news, which primarily prepared the reader for the April report.
Trump's tariff plan seeks to correct trade imbalances, but it is a very complicated approach that takes into account tariffs, VAT, subsidies, rules, foreign exchange misalignment, and other obstacles. Although the feasibility is yet unknown due to workforce reductions, the Commerce Department is anticipated to provide a comprehensive partner-by-partner review by April. Markets have long predicted that Q2 will see the highest level of trade pressure, even in the face of potentially high tariffs, especially those aimed at the EU. As a result, the recent decline is probably a temporary correction, supporting predictions of a stronger dollar into the second quarter.
As focus shifts to the Munich Security Conference and potential peace negotiations in Ukraine, the dollar is still weak for the time being. Even though the January US retail sales report was impacted by the weather, DXY can still move in the direction of 106.35.
