Pound Cautious With Trump & Starmer Trade Talks The Focus

GBP : Pound cautious with Trump & Starmer trade talks the focus

As investors await the conclusion of UK Prime Minister Keir Starmer's meeting with US President Donald Trump, sterling continues to be cautious against its major peers on Thursday. Starmer will talk about the two countries' trade policies. Given that, according to the US Bureau of Economic Analysis (BEA), the UK is the US's fifth-largest trading partner, after Canada, Mexico, China, and Germany, investors are keeping a close eye on the negotiations. Given that Trump has not mentioned unfair trade practices from the UK in his tariff threats since his election campaign, the trade talks are anticipated to be constructive. 

Earlier this month, Trump also said he is not sure if he will impose tariffs on the UK, saying he is certain a deal can be done with Prime Minister Starmer, whom he called "very nice."

In the meantime, UK Chancellor of the Exchequer Rachel Reeves is still hopeful that the next US government won't interfere with US-UK trade and investment. Speaking at the G20 Finance Ministers' session, Reeves said she is optimistic that trade and investment flows between the two nations will rise, as they did under Trump's prior administration. 

EUR : Euro stable amid tariff concerns

EUR/USD is still in line with short-term rate spreads, which have favored the Euro this month as concerns about the US slowdown feed a little more dovish Fed forecast, notwithstanding geopolitical turbulence. Future actions will depend on whether EU tariffs are implemented and on Fed and ECB repricing. Tariffs in April and a brief EUR/USD surge above $1.0500 are anticipated. ECB expectations could be impacted by today's Eurozone business and consumer confidence statistics. Stronger confidence may allow spending while savings rates are high, but the Euro may suffer from bad readings. ECB minutes and February CPI reports from Spain and Belgium are also of interest; a weaker core CPI may temper hawkish attitudes. 

If nothing changes, EUR/USD should remain between $1.0450 and $1.0530. The high gains in Eurozone stocks (+6% Eurostoxx vs. -1% S&P 500) may cause some EUR/USD selling as portfolios rebalance, so keep an eye on month-end flows around the 16GMT WMR fix. 

USD : Tariff risks taking its toll

With the consolidation of major pairs, FX volatility is close to two-month lows. Even though tariff threats are still present, their effects are diminishing—Trump's most recent threat of EU tariffs only caused the EUR/USD to drop 20–30 pips. As evidenced by the move of the Canada-Mexico border deadline to April, markets anticipate delays. Tariffs won't be taken seriously until they are put into effect. European assets, meanwhile, are doing very well. European gas prices are down, CEE currencies and Ukraine Eurobonds are being bid, and stocks are at their highest levels in years. There is growing speculation that the US-Ukraine mining deal last week may result in a truce and security guarantees. 

Weak consumer data continues to put pressure on the US dollar, with the largest short-term risk being unemployment claims. Markets are unlikely to be affected by the 4Q24 GDP revision, but Elon Musk's call for fiscal tightening keeps attention on the issue. Although lower yields have put pressure on the USD/JPY, a balanced budget may eventually help the dollar. The term premium for the US 10-year Treasury has decreased from 70bp to 30bp. Technically, unless it recovers ₣0.8965/9000, USD/CHF faces a further 2.5% decline. Support for DXY is observed at 106.00/30. 

Today's Highlights

GBP : No Data

EUR : No Data

USD : 13:30 Unemployment Claims & Prelim GDP q/q

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