The Trump administration has already hinted that the next trade restrictions will hit the EU. Preliminary reports suggest that this could involve tariffs of around 10%. The EUR/USD is under pressure while the EUR/PLN continues to drop after exceeding the 4.20 border. The Polish złoty’s recent strength is impressive and can be partially attributed to the hawkish stance of the National Bank of Poland.
Key points:
– Trump delays tariffs on Canada and Mexico.
– Risky currencies bounce back after initial sell-off.
– The Non-farm Payrolls (NFP) report indicates lower unemployment and higher wages in the US.
– The Bank of England (BoE) cuts interest rates, supported by all policymakers.
Trump’s decision to postpone tariffs on goods from Canada and Mexico initially brought relief to major currencies and caused market turmoil. However, when Trump later affirmatively stated that the tariffs were inevitable without specifying their scale, the recovery of risky assets lost intensity. A strong NFP report has put particular pressure on European currencies, highlighting a stark contrast between the economies on either side of the Atlantic. The Japanese yen was last week’s winner, continuing to appreciate, as investors price in more aggressive interest rate hikes from the Bank of Japan.
The next market-driving factor will be the newly announced tariffs by Trump on steel and aluminum, which are set at 25%. Investors seem torn between the fear of trade restrictions and relief that higher tariffs seem to be reserved for specific sectors. This week, the FX market’s attention will be on the US inflation report for January. The tariffs are likely to inflate prices even further, tightening the Federal Reserve’s tolerance for more readings above target.
PLN
The Polish złoty is strengthening, slowly decreasing after exceeding the 4.20 exchange rate against the euro, despite the decline of the EUR/USD in recent days. The złoty’s recent resilience is impressive and can be attributed to the hawkish stance of the National Bank of Poland. Last week, President Adam Glapiński repeated that the economic environment currently does not support interest rate cuts.
EUR
January inflation data in the eurozone surprised on the upside. We note that the core measure first dropped to 2.7% nine months ago, without any improvement since. Much like in the UK, the eurozone’s sluggish economic growth is more a result of supply side restrictions rather than inadequate demand.
USD
Predicting further news on tariffs is virtually impossible, so a better option may be focusing on the macroeconomic environment. Last week’s NFP report once again aligned with a robust US labor market. Unemployment rates are indicative of full employment, and wage growth surprisingly accelerated in January.
GBP
Weaker than expected economic data led to a very dovish split of votes in the Bank of England’s February meeting. All committee members sided for a rate cut. Two out of nine members, including hawk Catherine Man, voted for a larger cut.
Authors: Enrique Díaz-Alvarez, Matthew Ryan, Roman Ziruk, Michał Jóźwiak.
Source: https://ceo.com.pl/cla-na-ue-kurs-euro-pod-presja-po-sugestiach-administracji-trumpa-54287
