10% US 'blanket' tariff not yet fully priced in to EUR
Last week’s January inflation data for the Euro Area surprised to the upside. We note that the core index first fell to 2.7% nine months ago, and has failed to improve at all since that time.
As in the UK, dismal growth is more a factor of restrictions to supply than insufficient demand, and we think that the ECB will, therefore, have difficulty cutting rates much further.
Tariffs and the manufacturing recession are certainly negative factors for the common currency, but we think that current levels against the dollar largely price them in already.
All eyes will now be firmly on the Trump administration, which has firmly indicated that trade restrictions aimed at the European Union are in the offing.
Reports have suggested that a blanket tariff of 10% could be on the way, and it will be interesting to see to what extent this is already incorporated into the price of the euro - we would suggest, not entirely.
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