Eurozone consumers could ditch US products if hit by tariffs – Euro currency news daily

The Eurozone economy expanded by 0.4% in the three months to March after growing 0.2% in Q4 of last year. The market forecast was for a rise of 0.2%. The bloc’s Gross Domestic Product (GDP) accelerated at an annual pace of 1.2% in Q1 which mirrored growth in Q4 and was firmly above market expectations. Markets also saw the release of German inflation data which edged slightly lower to 2.1% on a yearly basis down from a previous read of 2.2%

The Pound traded slightly lower yesterday underperforming most G7 (Group of Seven) currencies in quiet, mixed trade. The softness follows a pullback from multi-year highs and is likely just a reprieve as markets await fresh catalysts. Domestic economic releases have been light and the data calendar remains empty ahead of next week’s BoE interest rate decision where it is widely decided that the UK will reduce borrowing costs by 25 basis points.

The US economy contracted by 0.3% in Q1 missing forecasts and raising concerns about stagflation (Inflation remains firm while the employment market contracts) making conditions decidedly difficult for the Federal Reserve. Adding to these woes, the Chicago Purchasing Managers Index fell further into contraction coming in at 44.6 vs expectations of 45.5 and significantly lower than the last print of 47.6.

Key movers
Surveys suggest that Eurozone consumers are happy to ditch US products if they are hit by tariffs in a tit-for-tat trade war with President Trump. Adding to this, investors in Europe have been spooked by Trump’s proposed tariffs and a strong Euro which could hamper the bloc’s export-reliant economy. In a lighter mood, German steel makers are expected to benefit from a boost in defence spending in Germany and more broadly across the Eurozone.

In the UK retail sales continue to surprise on the upside with the Purchasing Managers Index (PMI) hints at a more tentative signs of stagflation in the UK. The services sector slipped back into contractionary territory while activity in the manufacturing sector remains muted. The more muted outlook and price pressures are creating a conundrum for the Bank of England. As a result we have seen numerous MPC policymakers sounding a dovish tone adding fuel to markets expectations of a further rate cut in the UK.

The US Treasury’s primary dealers have said they would prefer to end the federal debt ceiling, as it likely increases debt servicing costs and increases market volatility and may hurt the US Dollars reserve asset status. Analysts said the debt limit has not promoted fiscal responsibility but has actually harmed the US’s credit rating. US Treasury secretary, Scott Bessent, has said that if the Trump administration wants to eliminate the ceiling they will work with congress to do so.

Source: EUbusiness