Focus Shifts to US Jobs Data as Trump’s Tariff Drama Continues
- Feb 4
- 3 min read
Updated: Feb 10
GBP : Pound grows stronger as UK likely to avoid tariffs
After the possibility of an American trade war was averted yesterday, the pound stood out as a pro-cyclical currency that is still strong. The main explanation is simple: the UK is comparatively less vulnerable to US tariffs. Less than 2% of GDP comes from exports to the US, while less than 1% comes from exports to China. Furthermore, considering the UK's small goods trade imbalance with the US, Trump doesn't seem eager to impose duties on the country. Positive diplomatic relations were also implied by his recent phone conversation with UK Prime Minister Keir Starmer. Sterling also benefited from Starmer's trip to Brussels. Although formally aimed at enhancing defense cooperation between the EU and the UK, markets might see this as a move toward deeper political relations. Sterling is still very sensitive to any indications that could boost the UK's economic outlook, so this is a positive development.
Nonetheless, there could be negative risks for the pound this week. Today, reports are anticipated to indicate that rising borrowing prices have reduced the UK Chancellor's fiscal headroom. On Thursday, the Bank of England might also announce a dovish rate drop. In spite of this, the GBP/EUR exchange rate might find it difficult to return to its January low of €1.1834 very soon.
EUR : Euro under pressure
Early European trade this morning saw the EUR/USD stay under pressure below $1.0300, recording notable losses as the demand for the US dollar as a safe haven increased. Following China's countermeasures in response to US tariffs, which raised concerns about rising trade hostilities, market mood declined. Additionally, investors are wary of the possibility of US tariffs on the Eurozone. Technically, the EUR/USD exchange rate is questionable. The weekly low of $1.0209 (February 3) and $1.0176, the pair's lowest level of the year, provide early support. A shift toward parity might result from a breach below this barrier.
The December peak of $1.0629 and the 100-day Simple Moving Average at $1.0651 are further obstacles on the upswing, with resistance found at $1.0532 (the year-to-date high from January 27). Amidst a dramatic rebound in demand for the dollar, the euro began the trading week poorly, plunging lower and reaching multi-week lows near $1.0200. As markets responded to reports that President Donald Trump had placed a 10% duty on Chinese imports and a 25% tariff on goods from Canada and Mexico, the greenback gained momentum.
USD : Markets adjusting after tariff issue
Early this morning, markets seem to be stabilising following Monday's dramatic market fluctuations brought on by stories regarding US President Donald Trump's tariff policies. The US economic docket will include comments by a number of Federal Reserve (Fed) leaders during American trade hours and JOLTS Job Openings data in the second half of the day.
Following Trump's announcement over the weekend of 25% tariffs on imports from Canada and Mexico and 10% on goods from China, market mood was driven by risk aversion, which originally caused the dollar to rise. But Mexico's president, Claudia Sheinbaum, said during Monday's U.S. session that the United States had agreed to halt tariffs on Mexico for 30 days in order to facilitate additional talks. Justin Trudeau, the prime minister of Canada, similarly declared late Monday that Trump will delay imposing tariffs on Canadian products for a minimum of 30 days. The USD Index retraced its previous surge and closed Monday's session essentially flat.
