The euro had its best day in quite some time on Monday, fuelled largely by reports that US president-elect Donald Trump is considering softening his policy on trade tariffs. GBP/USD also advanced by more than half a cent over the course of the day.
Increased consumer price inflation (CPI) in Germany also helped the euro’s cause. Germany’s headline inflation came in at 2.6% in December – its highest level in 11 months. The new data served as a reminder that the European Central Bank (ECB) is unlikely to be reckless in reducing interest rates further.
The bigger development was certainly the tariffs, however, given this has been the dominant source of EUR/USD pressure for two months. After the report first emerged in the Washington Post yesterday, markets quickly took it as a sign that their flight towards the US dollar had been overblown. European currencies rebounded and US stock markets went on to enjoy a blockbuster day.
A word of caution, though. As some commentators pointed out, the first Trump administration had form in manipulating markets (and foreign governments) when it felt things had moved too strongly in one direction. The new reports may therefore be more reflective of a short-term pivot rather than any significant policy changes.
Staying in North America, Canadian prime minster Justin Trudeau has announced he will resign after almost ten years as leader of the Liberal party. The Canadian dollar was broadly stable against rival currencies after the announcement late on Monday afternoon.
Trudeau has come under intense pressure since the election of Donald Trump. His popularity has slumped to historic lows and his resignation triggers a party leadership contest before a general election, which must take place by October.
In the UK, the Halifax house price index fell by 0.2% in December, dashing forecasts of a steady rise. On an annual basis, house prices were up by 3.3% last month, also well below the expected level.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 7898 0541 to get started.
