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Pound Sterling extends a recovery against the Euro as EU tariff headwinds grow.
U.S. President Donald Trump said on Thursday that he is ready to impose a 200% import tariff on all EU wines, champagne and alcoholic tariffs.
He says the measure is a retaliation for an EU tariff of 50% placed on the import of American whiskey.
"The European Union, one of the most hostile and abusive taxing and tariffing authorities in the world, which was formed for the sole purpose of taking advantage of the United States, has just put a nasty 50pc tariff on whiskey," he said in a post on Truth Social.
"If this tariff is not removed immediately, the U.S. will shortly place a 200pc Tariff on all wines, Champagnes and alcoholic products coming out of France and other EU represented countries. This will be great for the wine and Champagne businesses in the US," he added.
Trump had warned late on Wednesday that he would retaliate against the EU tariffs announced earlier in the day.
The Euro dipped on the latest headlines out of the White House: the Euro-to-Dollar falls from the week's high at 1.0947 to 1.0871 (-0.15% on the day) and the Pound-to-Euro is at 1.1926 (+0.16), up from the week's low at 1.1833.
Speaking shortly after Trump’s post on Truth Social, U.S. Commerce Secretary Howard Lutnick told Bloomberg that the US was going to "teach the rest of the world respect" when it comes to trade.
On Wednesday, a U.S. tariff on steel and aluminium came into effect, prompting the EU and Canada to announce retaliatory tariffs against U.S. goods, including bourbon whiskey, as “countermeasures”.
Additional headwinds to the Euro's impressive recovery include a more sober assessment of German spending plans as political parties enter a phase of intense negotiations to form the next government.
Wide-ranging negotiations on forming a new government get underway today, with the Green Party yet to support plans to reform Germany's fiscal brake.
"The German debt-brake reform is not yet a done deal," says Wolfgang Münchau at Eurointelligence. "It was proposed by the prospective new coalition between CDU/CSU and SPD. They are well short of the two-thirds majority needed in both chambers of the German parliament, the Bundestag and the Bundesrat."
Currency analysts at Commerzbank today warn the Euro could be set to fall "quite sharply" in the coming weeks as "euphoria" over Germany's spending plans are dealt a dose of reality.
Commerzbank economists do not expect Germany's planned stimulus to have an effect until next year at the earliest. They also warn Germany has historically struggled to spend, even when the money is made available.
"This year, growth in the euro area could even be weaker if Trump follows through on his tariff announcements on EU imports in the near future. In short, we expect the EUR-USD exchange rate to fall quite sharply in the coming weeks," says Michael Pfister, FX Analyst at Commerzbank.