EUR GBP Slumps as Markets Contemplate Trump?s Protectionist Policies

November 11, 2016 - Written by Frank Davies

STORY LINK EUR GBP Slumps as Markets Contemplate Trump?s Protectionist Policies

Concerns regarding how Donald Trump could impact global trade weighed on the EUR/GBP exchange rate today. Conversely, however, a favourable outlook on UK-US trade relations boosted Pound Sterling.

Euro Weakens as Markets Fear Impact of Donald Trump’s Anti-Free Trade Stance

Speculation that Donald Trump may push through with his controversial protectionist trade policies weakened EUR/GBP exchange rates ahead of the weekend.

An ‘America first’ policy from the Republican President-elect would seriously harm the Eurozone’s export sector.

Many officials are already commenting that this could spell the end of the Transatlantic Trade and Investment Partnership (TTIP) which President Obama has spent many years attempting to negotiate with the European Union.

According to European Trade Commissioner Cecilia Malmstrom;

‘There will be a natural pause, of course, while we wait for the next administration; then, for quite some time TTIP will probably be in the freezer.

Then what happens when it’s defrosted, I think we will need to wait and see.’

This could seriously weaken the outlook for the Eurozone economy, considering how lucrative the deal would have been for businesses within the currency bloc. The Euro area already benefits hugely from trade with America, which is at risk if Trump’s policies are more inwardly-focussed.

As Berenberg bank’s Kallum Pickering explains;

‘Europe earns almost 20% of its GDP from exports, that is 50% more than the US.

European producers would feel the pinch of a more inward-looking and less trade-oriented US. A US shift towards isolationism over the next four years that might then be mirrored by other countries is the major economic risk for Europe following the Trump victory.’

Pound Sterling Advances as Markets Focus on Trump’s Pro-UK Comments

Despite widespread confusion regarding the attitude of the incoming President towards global trade, markets decided that the UK was in a stronger position than before the election.

Britain’s post-Brexit trade prospects seemed to have been improved, with investor hopes bolstered by Presidential comments reinforcing the ‘special relationship’ between the United States and the UK.

This has seen markets ignoring the fact that Trump has been largely anti-free trade during his campaign, with investors buying Sterling on the hopes that a lucrative trade deal can be quickly struck with the US.

This would make the UK’s Brexit process proceed much-more smoothly, with the government in a stronger negotiating position if there is already some kind of agreement outside of the EU to fall back upon should single market access remain off the table.

Euro to Pound Sterling Exchange Rate Forecast; Volatility on Thursday from GDP and CPI

Although politics is likely to remain the key driver of EUR/GBP exchange rates over the coming week, Tuesday’s domestic data from the Eurozone and the UK is volatile enough that it could impact currency movements.

German, Italian and Eurozone GDP figures for Q3 are all set for release on Tuesday, as is the German ZEW survey results for November.

Meanwhile, the UK consumer price index for October will also be released. Considering Sterling has risen significantly in the wake of the US election, fears of overheating inflation are likely to be lessened.

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