Official White House Photo by Daniel Torok
Euro weakens against Pound Sterling after Trump tariff threat.
The Pound to Euro exchange rate (GBP/EUR) rose through the key 1.19 barrier in Friday trade after U.S. President Donald Trump threatened to impose a 50% tariff on all European Union imports starting June 1, accusing the bloc of unfair trade practices.
In a Truth Social post, Trump claimed the EU was “formed for the primary purpose of taking advantage of the United States on trade,” citing “powerful trade barriers” and “unjustified lawsuits against American companies.”
Derek Halpenny, Head of Research for Global Markets EMEA at MUFG Bank Ltd, says the Euro "has dropped sharply" in reaction to the news, as investors bet a tariff hit will force the European Central Bank into cutting interest rates more than currently anticipated.
"A 50% tariff could result in a big hit on euro-zone GDP and would likely prompt the ECB to cut the policy rate more aggressively," he says.
The developments sent a jolt through markets, where investors were getting used to the idea that the worst had passed on the trade war front.
GBP/EUR was higher 0.20% at 1.1918, ensuring our Week Ahead Forecast published on Monday is playing out beautifully:
Above: GBP/EUR at daily intervals with annotations sketched in Monday's Week Ahead Forecast.
U.S. equity markets reacted swiftly, with S&P 500 and Nasdaq 100 futures falling 1.1% and 1.3%, respectively. Trump also warned he would apply a 25% tariff on Apple Inc. products if the company failed to manufacture iPhones in the U.S., sending Apple shares lower.
The move came just days after the EU offered a new trade proposal that included tariff reductions and cooperation on issues like energy and AI. However, U.S. Commerce Secretary Howard Lutnick dismissed the EU effort, calling negotiations “impossible.”
In response, the EU is preparing retaliatory tariffs targeting €95 billion ($107 billion) of U.S. exports, even as it temporarily delayed a separate set of duties on U.S. steel and aluminium.
Dr. Christoph Swonke at Germany's DZ Bank says:
"Should the now threatened US tariffs of 50% actually come to pass, the EU will certainly respond with counter-tariffs. In this case, it is unlikely that the tariffs will be limited to selected products such as motorcycles, jeans, peanut butter, or bourbon whiskey.
"More far-reaching measures are conceivable. For example, the service businesses of major US tech giants in Europe could come under greater scrutiny. An escalation of the tariff disputes would likely result in significant growth losses and, at the same time, higher inflation rates for both the US and the EU."