Euro Rebounds as Tariff Fears Ease

Trump tariff unpredictability has led to a recovery for the Euro against the US Dollar, regaining 2% to climb above 1.04 since Monday. The currency pair had initially dropped to lows of 1.02, dragged down by fears that The US would move forward with tariffs on Mexico and Canada, as well as being touted to be followed up with The EU. Tariffs of 25% on both neighbouring partners had seen The Dollar gain considerably against major currency peers, but with both countries being able to negotiate with President Trump, and with that bring a pause to these tariffs, markets have rebounded as there is now hope that Europe can do the same, if and when they are hit with similar tariffs.

This afternoon we have the release of ADP Employment figures for January. This is eagerly watched by traders due to it being released two days before Non-Farm Payrolls, and the general correlation between both releases. The release measures the change within employment in the private sector, and similar to Non-Farm Payroll, continuous growth can in employment figures can be seen as inflationary and boost The Dollar. Today’s release is in fact due to also show an increase of 28,000 jobs from the previous month. If this occurs, and Non-Farm payroll was to also follow suit then we could see US Dollar strength.

Although there has been some respite for the Euro, tomorrow could be another crucial day in it’s performance with December Retail Sales due to be released, just before we have the Bank of England monetary policy meeting. First up with European Retail Sales, December’s figures look set to be fairly underwhelming with a decrease in performance compared to December 2023. Both economically and politically, both Germany & France who are the blocs biggest contributors, have struggled of late which led to a lack of confidence in both consumers and businesses and looks like it will be reflected in poor sales activity in what is usually one of the biggest periods of the year.

Onto the Bank of England’s rate decision and as it stands, there shouldn’t be any surprises sprung as markets and analysts alike have been gearing up for a 25 basis-point cut. More importantly will be any form of commitment to further rate cuts in 2025 as The UK economy battles with rising unemployment rates and a slowing economic performance. Markets are currently pricing in a total of three rate cuts this year, and this could potentially increase to four depending on comments made from Bank of England governor Mark Bailey. The vote split will also be key to Sterling’s reaction, as on the last meeting, only three of the nine members had voted for a cut. Whereas it is expected that eight out of the nine votes for a cut tomorrow.

GBP/EUR 1.2017 GBP/USD 1.2508 GBP/AED 4.5966
GBP/AUD 1.9921 GBP/CHF 1.1285 GBP/CAD 1.7870
GBP/NZD 2.2014 EUR/USD 1.0397 GBP/ZAR 23.2865

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