EUR/GBP steadies near 0.8450 due to risk-off mood following Trump tariff tensions
- EUR/GBP holds ground due to increased risk sentiment after fresh tariff threats from Trump.
- The BoE is expected to keep rates unchanged in June following recent key economic data.
- European Commission noted that Europe will retaliate against the Trump's plan to double tariffs on imported steel and aluminum.
EUR/GBP remains steady after registering gains in the previous two sessions, trading around 0.8430 during the early European hours on Monday. The currency cross moves little due to increased risk sentiment after US President Donald Trump threatened to double import tariffs on steel and aluminum, increasing them to 50% from 25%. The potential tariffs increase concerns regarding slow growth and renewed inflation in the United States.
The British Pound also draws support from increased expectations that the Bank of England (BoE) would pause easing monetary policy in June. The hotter-than-expected UK Consumer Price Index (CPI) and a robust growth in the UK Retail Sales data for April weakened the dovish bets surrounding the BoE’s policy outlook.
Moreover, the International Monetary Fund (IMF) has increased its UK GDP growth forecast for the 2025 to 1.2% from its prior estimate of 1.1%. The upward revision came as Gross Domestic Product (GDP) showed that the economy expanded at a robust pace of 0.7% in the first quarter, following the 0.1% growth seen in the last quarter of 2024.
On Saturday, The European Commission (EC) said that Europe was prepared to fight back against the President Trump's plan to double tariffs on imported steel and aluminum. The Euro (EUR) may face challenges due to increased safe-haven demand amid escalating the trade fight between two of the world's largest economic powers.
President Trump, on May 25, delayed the tariff deadline on imports from the EU from June 1 to July 9. Meanwhile, the Brussels also agreed to accelerate trade talks with the United States to avoid a transatlantic trade war.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.