President Trump concedes on car tariffs, ECB to hold policy steady

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26 July 2018

thomasdodds

The Euro eked out gains against the US Dollar on Wednesday afternoon, following talks between President Trump and European Commission chief, Jean-Claude Juncker.

I
n what is being seen as a major concession, Trump agreed to begin a ‘new phase’ in relations with Europe, in which the US would refrain from imposing car tariffs, while working towards cutting trade barriers entirely. This is a fairly major breakthrough that eases concerns of a full blown global trade war.

The common currency spent much of Wednesday London trading mostly range bound, with investors eyeing this afternoon’s meeting of the European Central Bank for direction. The ECB announced at its most recent meeting last month that it would be ending its large scale quantitative easing programme this December, following a three month tapering period. It also prepared the markets for another prolonged period of zero rates, with President Draghi reiterating that any interest rate hikes remain a long way off.

With the major policy announcement now behind us, today’s meeting could therefore be relatively low key. We think that the ECB could instead use this meeting to firm up its forward guidance, while provide the bank’s view on how the recent global trade tensions will impact the Eurozone economy. Today’s rate announcement will be released, as usual, at 12:45 BST, with President Draghi’s Press conference to follow 45 minutes later.

Pound touches 8 day high, traders eye BoE meeting

Sterling briefly touched its strongest position in eight days on Wednesday, although spent much of the session range bound amid a dearth of major news. Economic data out of the UK was all second tier yesterday, and completely overlooked by currency traders in favour of underlying Brexit developments.

Theresa May’s decision to take control of the Brexit negotiations was greeted positively by the market, with traders hopeful that this will make it easier for the UK to come to a divorce agreement with the European Union before the end of October deadline. Increasing expectations for another interest rate hike by the Bank of England next week also helped the currency in the past few sessions. Following the BoE’s hawkish assessment in June, the market is now placing around a near certain 90% implied probability of a rate increase when the MPC convenes at Threadneedle Street next Thursday.

With no data releases out in the UK today, the Pound will likely be driven by developments out of the ECB meeting.