European update – Tariffs pile on the pressure

Trump unfazed by market sell-off

We’re back in the red on Friday, with Trump’s latest announcement on Mexican tariffs adding to the feeling of unease among investors.

Source – Thomson Reuters Eikon

The initial tariffs are very small but regular incremental rises means we’re facing the prospect of 25% levies by October on another major US trading partner, something that has the potential to jeopardise the USMCA deal that is yet to be ratified. We know that Trump feels tariffs are an effective way of pressuring countries into bending to his will but the timing of this announcement is very strange.

The President is still engaged in a trade war with China, one that’s turned sour and looks set to escalate before compromise will be found. Moreover, he’s slapping tariffs on another major trading partner before the USMCA is ratified and ahead of an election year. And that’s before you throw a wobbly stock market into the equation, with the tariffs only likely to make nervy investors more anxious.

All things considered, the headwinds are growing and the inversion in the yield curve is not helping matters. We know that Trump closely monitors the markets, which may make the next few weeks a little uncomfortable for him.

Gold edges higher as dollar pares gains

The dollar is taking a breather at the end of the week which is providing some reprieve for gold on Friday, which despite being a traditional safe haven, hasn’t had a great time in the current environment. The flattening of the yield curve, as investors move into Treasuries in anticipation of lower interest rates, has lifted the dollar and held gold back.

There’s nothing to say that will continue though. In the fourth quarter of last year, gold got off to a stuttered start but did rally in the final couple of months, eventually reaping the benefits of its safe haven status. There’s nothing to say that won’t happen again and it failing to break below $1,265 so far again this week may support that prospect.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam