Home Daily Commentaries Europe braces itself for proposed US tariffs on imported goods

Europe braces itself for proposed US tariffs on imported goods

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Thursday 7 November, 2024

Daily Currency Update

The victory of President-elect Donald Trump could present downside risks for Europe’s growth outlook, particularly for export-driven countries like Germany and the Netherlands. Tariffs on U.S. imports are expected to range between 10% and 20%, which could further slow Europe’s exports and potentially push the economy back toward stagnation. Some analysts suggest these tariffs could reduce Eurozone GDP growth by as much as 1.5%.

The UK is anticipated to lower borrowing costs by 25 basis points in today’s Monetary Policy Committee meeting, with an expected 7-0 vote in favor of the cut. This move is also driven by concerns over potential tariffs from a Trump administration. The National Institute of Economic and Social Research (NIESR) indicated yesterday that UK growth could slow to 0.4% if proposed tariffs on U.S. imports are implemented.

The U.S. Dollar surged yesterday following the election of Trump as President. The Republican Party also appears to have gained control of both the Senate and the House of Representatives, marking a sweeping victory that took markets by surprise. The Dollar strengthened by over 1.5%, particularly against risk-sensitive currencies. The election outcome will keep the Federal Reserve on alert as they assess how a Trump victory may impact the U.S. economy.

Key Movers

European bonds surged higher yesterday as expectations grew for the ECB to cut rates more aggressively in response to an anticipated slowdown in economic activity, driven by threatened tariffs from the US. The stakes are high for the European economy, which has already navigated the COVID crisis, the war in Ukraine, and global trade tensions in recent years. European policymakers are also bracing for increased defense spending if Trump withdraws support for Ukraine.

British Finance Minister Rachel Reeves stated yesterday that she would make "strong representations" to President Trump about the importance of free trade, following his vow to impose tariffs on all US imports. Economists revised UK GDP growth expectations down to 1.4% from 1.6% due to the proposed US tariffs. Reeves emphasised, "We will continue to have a healthy economic relationship with the US as we make the case for free trade."

The US Federal Reserve meets later today, and it is widely expected to reduce interest rates by 25 basis points. However, with Trump now expected to implement inflationary policies, markets have adjusted their expectations for the size and pace of US rate cuts, which should help keep the dollar firm. Markets now anticipate US rates will drop to 4% by June 2025, 100 basis points lower than previously expected in September of this year.

Expected Ranges

  • GBP/USD: 1.2905 - 1.2955 ▼
  • GBP/EUR: 1.1985 - 1.2035 ▼
  • GBP/AUD: 1.9470 - 1.9520 ▼
  • EUR/USD: 1.0735 - 1.0785 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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