Why EUR/GBP went up yesterday – Commerzbank

Thursday's trading session saw a number of interesting moves, one of which was the upward movement in EUR/GBP. At first glance, this was a bit surprising, Commerzbank's FX analyst Michael Pfister notes.

20% tariff on EU imports was largely expected

"After all, the UK only got the minimum 10% tariff, while the EU got twice that – and at the same time the German car industry in particular got tariffs of up to 25%. The relative outperformance of the euro is probably due to the fact that the c, while the UK was always expected to be exempt from tariffs given its current account deficit with the US. So it does not help that the UK is relatively less affected than the EU."

"But the tariffs raise a number of questions that go beyond the performance of sterling. The US government's aim in imposing reciprocal tariffs is to eliminate the current account deficit with other countries, i.e. the US government's aim seems to be to have balanced trade balances with all countries. Whether or not this has been thought through, countries that import more US goods than they export are also being punished symmetrically (e.g. Brazil in addition to the UK)."

"It would actually make sense for the UK to import less US goods (or export significantly more goods to the US, e.g. coming from the EU, which has a higher tariff) and thus run a current account surplus with the US, to the point where the UK would receive a 10% tariff. It's hard to imagine that this is the US government's aim. But it shows how little thought has been given to these tariffs in some cases."