The Pound Euro (GBP EUR) exchange rate is holding relatively steady this morning as investors tread cautiously ahead of a meeting between US president Donald Trump and his Chinese counterpart Xi Jinping.
Trump has previously been vocal in his criticism of the Chinese government which he accused of manipulating its currency in order to gain a trade advantage over the US, something Trump believes is costing US jobs.
While Trump appears to have toned down his rhetoric since assuming office in January markets are still spooked by the possibility of his talks with Xi ending acrimoniously, with Trump himself saying in a tweet last week that his first meeting with the Chinese President was likely to be ‘very difficult’ which may be exacerbated by the launch of another missile by North Korea earlier this week.
The main fear for investors is the possibility that the talks could lead to further trade frictions between the two governments, with Trump having previously stated that he was not afraid of a trade war with China, something that would have a far-reaching impact on the global economy.
However despite subdued market activity GBP EUR did see a momentary spike earlier this morning as the Euro briefly fell following a speech from European Central Bank (ECB) President Mario Draghi.
EUR investors were disappointed by Draghi’s remarks as he suggested that it was still too soon to begin discussing the tightening of the monetary policy despite the recent uptick in the Eurozone economy.
‘Before making any alterations to the components of our stance – interest rates, asset purchases and forward guidance – we still need to build sufficient confidence that inflation will indeed converge to our aim over a medium-term horizon, and will remain there even in less supportive monetary policy conditions.’
This was perceived as a major climb-down from the ECB President after he previously suggested that the Eurozone was no longer in danger of deflation during an unusually hawkish in his most recent policy meeting statement.
Looking ahead the GBP EUR exchange rate is likely to be pressured by the release of the UK’s Trade Balance on Friday as economists forecast that Britain’s trade deficit will have grown in February.
However the Pound may be able to offset some its losses if tomorrow’s Manufacturing and Industrial Production figures impress investors.
Meanwhile the Euro may be strengthened by Germany’s own trade figures as the country’s trade surplus is expected to climb again after dropping at the start of the year.
Current Interbank Exchange Rates
At the time of writing the GBP EUR exchange rate was trending around 1.17 and the EUR GBP exchange rate was trending around 0.85.
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