Markets steady as Trump threatens EU with tariffs

European automakers under pressure after renewed Trump threats

It’s been another relatively slow start to trading on Thursday, with stocks in Europe trading relatively flat and US futures pointing to a similar open on Wall Street.

European automakers have been under a little pressure this morning after US President Donald Trump once again threatened 25% on all imports. It seems that despite the positive talks with Jean-Claude Juncker last month, Trump is once again losing patience with the EU and is using the auto industry to push the issue. Of course, this could simply be a deflection technique to distract from what has been a tough week for the President, with his former campaign manager being found guilty of fraud and his former lawyer pleading guilty to campaign financing crimes, implicating Trump in the process.

While European stocks on the whole are holding up ok, the single currency isn’t doing so well. The euro has pared losses over the last week against the dollar, as Trump blasted the Federal Reserve for not helping his cause by raising rates, as well as the EU and China for apparent currency manipulation. This provided some temporary relief in the dollar rally, something that may have already run its course with the greenback once again higher on the day.

Tariffs support U.S dollar

GBP slips as prospect of no deal Brexit seen rising

The pound isn’t faring much better against the dollar, with trading clearly displaying their concern not just at the lack of progress in Brexit negotiations, but the acknowledgement among senior ministers that no deal is not only a possibility but even more probable than not. While I still don’t believe this is actually the case, it is taking its toll on the pound which is now off more than 10% against the dollar in a little over four months.

GBPUSD Daily Chart

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Of course, this is being aided by the overall strength that we’re seeing in the dollar, which has benefited not only from a strong economy and fourth rate hike being priced in this year, but also some safe haven flows with Treasuries being preferred to the more traditional option of Gold, possibly due to the yield they now offer.

Aussie drops on Turnbull turbulence

Powell speech tomorrow of interest as Trump applies pressure on Fed

With the President clearly unhappy with the strength of the dollar and showing his frustration with the Fed as a result, it will be interesting to see what Chairman Jerome Powell has to say during his Jackson Hole speech tomorrow. The Fed has been clear and consistent in raising rates recently, having hiked once a quarter since the end of last year and is expected to continue that through the end of 2018. I don’t expect Powell’s views – or those of the rest of the FOMC – to change on the back of these comments from Trump.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.