FX Markets Subdued Despite Trump-EU Deal to Avoid a Trade War

Trade tensions were eased on Wednesday after the US announced it had agreed to work towards zero tariffs on “non-auto industrial goods” with the European Union. Unlike equity markets, which rallied strongly on the news, FX markets were little changed on Thursday morning.

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The Canadian dollar was the main beneficiary and the US dollar the main casualty from Trump’s deal with European Commission President Jean-Claude Juncker. Approaching noon in London on Thursday, USD/CAD was trading 0.5 percent lower than levels on Wednesday evening, at 1.3045, and both EUR/USD and GBP/USD were 0.25 percent higher at 1.1707 and 1.3185 respectively. Each of the other majors had strengthened less than 0.2 percent against the greenback.

As part of the preliminary deal, Trump announced that his administration would reconsider tariffs imposed earlier in the year on European steel and aluminium imports, and the EU agreed to buy more American natural gas and soybeans.

“This was a good and constructive meeting,” Juncker said on Wednesday.

“This was a very big day for free and fair trade,” Trump said at the joint press conference; it was a day that would take the US-EU relationship into a “new phase.”

FX traders are perhaps reluctant to read too much into these developments. If nothing else, they’ve learned over the past eighteen months that where Trump is involved, certainties today become nothing of the sort tomorrow.

Major events on Thursday include the ECB press conference, scheduled for 1:30pm in London (2:30pm in Frankfurt), and the meeting in Washington of trade negotiating teams from the US, Canada and Mexico.


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