Thursday’s Bank of England interest rate decision is the headliner of another big week for the pound. GBP/EUR ended Friday at its highest level in over three weeks but the prospect of another 0.25% cut to interest rates threatens that platform.
These matters soon became secondary to the brewing trade war. Over the weekend, US president Donald Trump outlined blanket tariffs of 25% on Canada and Mexico and 10% on China. Trump then took aim at Europe and told Americans that his aggressive measures were likely to cause “some pain” in the near future.
European stock markets opened the week in freefall. Trump said that tariffs on the eurozone would “definitely happen”, only slightly softening that stance to “might happen” when it comes to the UK. There is a very real risk that further tariffs and tit-for-tat retaliation by affected countries boils over into the kind of trade shock the world hasn’t seen in generations.
Friday brought some key German data, with both employment and inflation the subject of scrutiny. It was a mixed bag in terms of results – unemployment increasing as inflation fell back to 2.3% in January after a jump a month earlier.
After cutting interest rates last week, European Central Bank (ECB) president Christine Lagarde teamed up with European Commission president Ursula von der Leyen to pen a joint piece in the Financial Times. In the article, the pair acknowledged the challenges facing Europe but struck a positive note on the way forward. “We are ready to do whatever is necessary to bring Europe back on track”, the piece read.
In the world of business, medical giant AstraZeneca cancelled its plans to build a £450mn vaccine manufacturing plant near Liverpool. AstraZeneca cited several factors for its decision, including the amount of government funding on offer.
The week ahead looks treacherous for sterling with Thursday’s interest rate decision presenting significant uncertainty. More busy times for economic data see more eurozone inflation reads, US jobs and industry activity reports, as well as some more UK property news in the form of the Halifax house price index.
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