Dollar a touch firmer on tariff headlines
Markets faced a barrage of Trump tariff headlines late yesterday, with the US president insisting the deadline (August 1st ) for the imposition of reciprocal tariffs would not be extended again as well as announcing a 50% tariff on copper effective from late July or early August, while also threatening a (scarcely believable ) 200% tariff on pharmaceuticals albeit it wouldn’t come into effect for 12-18 months. The dollar is slightly firmer amidst all of this, trading at around $1.1720 to the euro and at $1.36 against sterling. EURGBP is little changed from this time yesterday morning at about £0.8620.
US equities succumbed to the tariff headlines, giving up earlier (modest) gains to close flat to marginally lower overall. European stocks advanced for a second consecutive day, ending with gains of around 0.6%, and they are a touch firmer again at the open today. In government bond markets, US yields retreated from their day’s highs as stocks weakened, with 10-year yields up just 2bps or so at the close of business, while German and UK 10-year yields both rose by about 5bps on the day.
Adding to the pressure on the Chancellor, Rachel Reeves, the Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, warns that “efforts to put the public finances on a sustainable footing after a series of global shocks have met with only limited and temporary success in recent years, leaving the UK with the sixth-highest debt, fifth-highest deficit, and third-highest borrowing costs among 36 advanced economies.” Given this “more vulnerable backdrop”, the OBR says the “risks to the fiscal outlook are mounting (including) “the sustainability of state and private pensions and the sector’s demand for government debt.”
ECB member Vujcic says “we should not be worried about the small deviations (of inflation from target) we will probably see in the short term,” adding that the central bank has “the luxury to wait” for incoming data which will “determine what we are going to do (on interest rates), whether we are going to move from here or whether we are going to stay where we are.” The market expects the ECB to remain on hold at this month’s meeting (July 24th) and is pricing in one further 25bps reduction in the deposit rate (to 1.75%) by year-end.
For the day ahead, it’s very quiet in terms of economic data once again with little or nothing of note due for release. The Fed publishes the minutes of last month’s monetary policy meeting, while a number of ECB members are due on the wires over the course of the day.