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The Euro is struggling on news of a suspension in U.S. & Chinese tariffs.
The U.S. and China have suspended tariffs for 90 days while agreeing to significantly reduce the total levy that will ultimately be introduced.
The Euro dropped sharply on confirmation of progress between China and the U.S. officials in Geneva. Speaking to the press on Monday, U.S. Treasury Secretary Scott Bessent said: "we have reached an agreement on a 90-day pause and substantially moved down the tariff levels."
The Pound to Euro exchange rate (GBP/EUR) trades a third of a per cent higher on the day at 1.1862 as the deal bolsters global investor sentiment, which is an important driver of the pair.
The U.S. and China agreed to temporarily lower some tariffs for 90 days, and Beijing is to cut tariffs on US goods to 10% from 125%.
Washington will reduce duties on Chinese goods to 30% from 145%, marking a significant de-escalation in tensions.
The Eurozone's single currency was the standout winner of the trade war and rising fears that the U.S. economy would suffer a hit. News of progress means those assets that were winners of the 'sell America' trade must now reverse some of those gains, and this is weighing broadly on the currency and allowing Pound Sterling to recapture ground lost in early April.
Chinese Vice Premier He Lifeng said the talks represented "an important first step" toward reaching a new accord on trade. "Whenever it gets released, it will be good news for the world."
Signs of progress were not expected so soon, owing to the significant deterioration in relations between the U.S. and China following the imposition of significant tariffs by President Donald Trump.
Investors welcomed progress on Monday, sending global stock markets higher in a 'risk on' trade.
Above: GBPEUR at daily intervals.
GBP/EUR cratered in April as global markets baulked and volatility spiked at Trump's 'Liberation Day' tariffs, which were more severe than expected.
GBP/EUR has an inverse correlation with volatility, meaning that the exchange rate tends to rise amidst fading volatility, which can continue as long as the U.S. continues to resolve its trade relationships.
Looking at the chart shows that momentum is constructive and further gains are likely: the pair trades above the nine-day exponential moving average (EMA) at 1.1816, while the Relative Strength Index is positive and pointing higher at 66.26.
A pullback is possible in the first half of the week to allow the market to reconvene with the nine-day EMA (the exchange rate tends to 'hug' it), but weakness is viewed as temporary and a steady advance to 1.19 is possible.
Looking at the calendar, the UK reports all-important wage and employment data on Tuesday, which can often trigger volatility. The expectation is that wages will remain elevated and therefore preclude the Bank of England from accelerating the pace it cuts interest rates.
The Bank gave a more cautious than expected account of itself in last week's May Monetary Policy Report, defying expectations that it might have paved the way for a follow-up June interest rate cut.
The Bank made clear it remains cautious about inflation being too high, and that wages remain a key driver of this inflationary strength.
Another hot reading will underpin the Bank's caution, which is proving supportive of the Pound. The market expects average earnings with bonuses to have increased 5.2% in the three months to March.
Also due for release on Tuesday is the unemployment rate, which is expected to have notched up to 4.5% from 4.4%.
Data out of Germany on Tuesday will be important, with the ZEW sentiment survey due for release. Markets will want to know if the new government's commitment to increased spending are translating into a pickup in sentiment.
Tuesday also sees U.S. inflation numbers, which can impact the global investor backdrop, which, as discussed earlier in this piece, is important for the GBP/EUR and other exchange rates.
It is difficult to judge how the market will react to either an upside or downside surprise, but we suspect a below-consensus reading (2.4% is expected) will bolster hopes the Federal Reserve will cut interest rates next month, thus boosting sentiment and the Pound.
German and Spanish inflation numbers are due out Wednesday, which can offer some interest for Euro exchange rates.
Thursday sees UK GDP numbers for the first quarter released, where the expectation is for a decent 0.6% print to be forthcoming, which should underscore the Bank of England's cautious approach to cutting interest rates too fast, which is supportive of the Pound.