With China showing no signs of yielding to US demands for concessions over trade, the White House is now reported to be considering a six-month delay over the implementation of tariffs on cars imported from both Europe and China into the US. The focus is on allowing manufacturers the opportunity to slow sales themselves in that period, a concession that has been sufficient to help provide a degree of support to the Euro. However, with fresh criticism being levelled at the European Commission’s fiscal rules, the potential fallout from next week’s elections for the European Parliament shouldn’t be underestimated. Gains for populist parties will have the potential to see further criticism of the rule book and could, in turn, weigh on the common currency.
Despite the continued strong employment numbers, US Retail Sales data slipped into negative territory yesterday, raising fresh concerns over the outlook for the world’s largest economy. The stimulus effect of Donald Trump’s tax changes appears to be running out of steam, which could continue to heap pressure onto the Federal Reserve to ease monetary policy. Any such move would likely produce US Dollar weakness, regardless of its current popularity as a safe-haven play.
The Pound sold off heavily against the US Dollar with political uncertainty dominating. The pair is now trading down at levels not seen in three months, and unless there’s some clear indication from the Federal Reserve that easier monetary policy is coming soon, the downside pressure could be sustained.
The Euro continues to trade broadly sideways against the US Dollar. Italian criticism of European spending limits has largely been offset by the US delay of auto tariffs, with a net neutral result for the pair.
The Pound traded close to three-month lows against the Euro during Wednesday’s session, posting its eighth successive day of declines. UK political risk continues to dominate. Even Theresa May’s departure might not in isolation provide support to the embattled Pound.