Dollar under pressure
Donald Trump jolted markets on Friday with his threat to slap a 50% tariff on the EU from June 1st, saying trade negotiations with the bloc have been “going nowhere”, though he has now agreed to extend this to July 9th (the end of the 90-day ‘reciprocal’ tariffs pause period) following a “nice call” with the President of the European Commission, Ursula von der Leyen, over the weekend. The dollar – which advanced very briefly on Friday following Trump’s comments before losing ground against most other currencies – remains under pressure this morning, falling to $1.14 against the euro and to just shy of $1.36 against sterling (its lowest level versus the pound in more than three years). EURGBP is trading at around £0.84 at the start of play today, having dipped to £0.8380 on Friday post-Trump’s tariff threat.
German short-dated bonds led a decline in yields following Trump’s intervention on Friday, as the market firmed up ECB rate cut bets, though yields are edging higher again this morning following developments over the weekend. Similarly, European stocks have recovered ground at the open this morning, up more than1% having shed almost 2% on Friday. US stocks closed lower on Friday, ending down around 0.7%. (US equity and bond markets are both closed today for a public holiday).
Wage growth in the Euro area eased notably in the first quarter of this year according to the ECB’s negotiated wage rates index, falling to 2.4% year-on-year from just over 4% in the final quarter of last year. This will reassure the central bank that services inflation, currently running at 4%, will decelerate over the course of this year and into 2026.
Fed member Goolsbee says the central bank has to wait longer before taking action on interest rates as it assesses the impact of tariffs (and other economic policies) on the US economy, though he does think that “10 to 16 months from now rates could be a fair bit below where they are today.”
Looking to the week ahead, the economic data calendar is reasonably light with the Euro area Economic Sentiment Indicator for May due tomorrow; consumer confidence (May), Q1 GDP (2nd estimate) and PCE inflation (April) in the US on Tuesday, Thursday and Friday respectively; and the Lloyds Business Barometer (May) in the UK on Friday.