On March 13, 2025, at 08:16:09, the EUR/GBP currency pair dropped below the 0.8400 mark. This downward movement came as the euro faced significant headwinds amidst heightened market jitters.
The euro’s struggles can be largely attributed to the escalating trade tensions between the United States and the European Union. After the EU imposed retaliatory measures against the US, former US President Donald Trump threatened to slap additional tariffs. This move sent shockwaves through the markets, causing investors to turn cautious. Uncertainty over the potential economic impact of these tariffs has put downward pressure on the euro.
Adding to the eurozone’s troubles, Germany’s plans for increased state borrowing are hitting roadblocks. On Wednesday, Franziska Brantner, co – leader of the Greens party, hesitated to back the borrowing plans. Meanwhile, the far – left party launched another legal challenge. These developments have clouded the future of Germany’s proposed economic measures.
Election winner Friedrich Merz is eager to push through debt reforms and establish a €500 billion ($545 billion) infrastructure fund before the current parliament dissolves. However, as Reuters points out, the success of these initiatives hinges on securing support from the Greens and overcoming potential legal hurdles.
Adding fuel to the fire, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel issued a stark warning in a BBC interview on Thursday. He cautioned that US trade tariffs on the EU could push Germany into a recession this year, further denting market confidence in the euro.
In contrast, the situation in the UK presents a somewhat different picture. UK Prime Minister Keir Starmer remains hopeful that Britain can dodge US tariffs on steel and aluminum. He advocates for a “pragmatic approach” in trade negotiations with the US, keeping all options on the table. Unlike the EU, the UK has reaffirmed its commitment to trade discussions with Washington, which may be influencing the relative strength of the pound.
The UK’s 10 – year gilt yield has soared to 4.68%, reaching its highest level in two months. This increase is driven by growing expectations that the Bank of England (BoE) will keep interest rates elevated for an extended period. Traders have adjusted their forecasts, now anticipating only a 52 – basis – point (bps) rate cut in 2025, a significant reduction from previous expectations of more aggressive easing.
Investors are now closely eyeing Friday’s UK monthly GDP data for January. This data could provide crucial insights into the UK’s economic outlook, potentially affecting the future movement of the EUR/GBP currency pair.
In addition, the article also includes some frequently asked questions about tariffs:
What are tariffs?
Tariffs are customs duties imposed on specific imported merchandise or product categories. They aim to boost the competitiveness of local producers by giving them a price edge over imported alternatives. Along with trade barriers and import quotas, tariffs are commonly used as protectionist tools.
What is the difference between taxes and tariffs?
While both tariffs and taxes generate government revenue for public services, they have notable differences. Tariffs are paid at the port of entry, while taxes are paid at the time of purchase. Taxes are levied on individual taxpayers and businesses, while importers are responsible for paying tariffs.
Are tariffs good or bad?
Economists are divided on the use of tariffs. Some believe they are essential for protecting domestic industries and correcting trade imbalances. Others, however, view them as a harmful measure that could drive up prices in the long run and trigger a damaging trade war through tit – for – tat tariff impositions.
What is US President Donald Trump’s tariff plan?
Ahead of the November 2024 presidential election, Donald Trump made it clear that he intended to use tariffs to support the US economy and American producers. In 2024, Mexico, China, and Canada accounted for 42% of total US imports, with Mexico being the top exporter. Trump planned to target these three countries with tariffs and use the revenue generated to lower personal income taxes.
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