It was a turbulent day for sterling yesterday, with sharp rises and falls for GBP/EUR, but continued growth against the US dollar.
European exporters including Porsche and Heineken have been warning that the strong euro – on top of tariffs – is a serious threat to their business. The euro is 10% stronger against the US dollar than in January.
In the UK, representatives of the British film industry have warned that if a levy of 100% on movies made outside the US, as threatened by Trump, is imposed it would wipe out their industry.
The warning came amid a generally depressing set of data for the UK yesterday, all on the back of the trade war. The final result for the Purchasing Managers’ Index (PMI) showed increasing pessimism in the service industries, as the index fell to 49 from 52.5 the previous month. Anything below 50 signals contraction in the industry, and this is the first such result for 17 months. Also yesterday, new car sales fell by 10.4%.
On the plus side, the UK has agreed a trade deal with India, announced yesterday. It will, says the UK government, boost trade by around £25bn per year by 2040. Also in that region, India has struck militarily at targets inside Pakistan, in response to a recent terrorist attack which it blamed on its neighbour. If this conflict worsens it could produce a more “risk off” mood in the markets and strength to safe-haven currencies such as the yen, Swiss franc and USD.
This afternoon there will be an interest rate decision from the US Federal Reserve (“The Fed”) and tomorrow it is the turn of the Bank of England. While the Fed is not expected to cut rates, the Bank of England is, by 0.25%. Any divergence from that is likely to cause even more volatility in the markets than we have seen recently.
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