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The dollar has fallen further, hitting the lowest level since November, after Donald Trump said his new tariffs will cause “a little disturbance” in a combative speech to Congress, as he vowed to push ahead with his hugely divisive domestic agenda.
\n In the first major policy speech since he took office in late January, the president doubled down on his decision to impose 25% tariffs on Canada and Mexico, the US’s two biggest trading partners, and an additional 10% levy on China. Trump said:
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Tariffs are about making America rich again, and making America great again.
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It’s happening, and it will happen rather quickly.
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China and Canada said they would hit back with retaliatory tariffs.
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However, Trump’s trade polices have sparked “Trumpcession fears” – concerns that they could push the American economy into a contraction or even recession – and there is talk that the dollar could lose its safe-haven status.
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A closely watched gauge of the US economy weakened a couple of days ago. The Atlanta Federal Reserve’s GDPNow model now estimates US GDP will shrink at an annualised rate of 2.8% in January-March.
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The dollar index, which measures the greenback against a basket of major currencies, fell to 105.35 this morning, the lowest since 11 November.
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Analysts at Deutsche Bank said:
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We have published today on a concern around the loss of the dollar’s safe-haven status. Our views on this are evolving and will depend on the US policy path in coming months, in particular on the extent to which it continues to pursue disruptive domestic economic outcomes.
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Stock futures are pointing to a higher open in Europe, with Germany’s Dax seen rising by 2.3% after a German debt brake deal was announced, while the FTSE 100 index is expected to gain 0.9% when markets open at 8am.
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The yield on Germany’s two-year government bond jumped by 7.8 basis points to 2.093% after a deal to loosen the German debt brake. The partners in Germany’s next government have said they will seek to loosen rules on running up debt to allow for higher defence spending.
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Economists at Deutsche Bank called it a “a historic ‘whatever it takes’ moment”.
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The leaders of CDU/CSU and SPD (which are in talks to form a coalition government after a national election just over a week ago) agreed on an even more significant fiscal expansion than expected.
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The plan is to make three big changes to the debt brake (which limits new borrowing to 0.35% of GDP) in the very near term, and to convene the outgoing parliament in which the centrist parties still hold a constitutional majority to push this through:
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A €500bn special purpose vehicle for infrastructure investment, of which €100bn will be allocated to the federal states, called Länder.
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A reform of the debt brake to exempt any defence spending over and above 1% of GDP, effectively permitting open-ended borrowing for defence.
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A reform of the debt brake at the Länder level to raise their net borrowing cap from 0% to 0.35% of GDP, as at the federal level.
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The Agenda
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9am GMT: Eurozone HCOB Services and composite PMIs for February (final)
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9am GMT: UK new car sales for February
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9.30am GMT: S&P Global Services and composite PMIs for February (final)
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2.30pm GMT: Bank of England governor Andrew Bailey and other policymakers are quizzed by Treasury committee about interest rates
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3pm GMT: US ISM Services PMI
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Important Events
And we're off. European stocks have rallied as expected after the German debt brake deal was announced.
Frankfurt's DAX increased by 2.2%, French CAC and Spanish IBEX rose by 1.4%, while UK FTSE 100 rose to 0.57% (50 points) to 8,808.
Introduction: The dollar hits four months low, European stocks rally after German debt brake trading as Trump warns that tariffs will cause “a little hindrance”
Good morning and welcome to our comprehensive coverage of our business, financial markets and the global economy.
The dollar has dropped even further, reaching its lowest level since November Donald Trump His new tariffs have said that he will cause “a bit of a disturbance” in his fight with Congress as he vowed to promote a highly divisive domestic agenda.
In his first major policy speech since he took office in late January, the president doubled his decision to impose 25% tariffs on Canada and Mexico, the two largest trading partners in the United States, and a further 10% tax on China. Trump said:
Tariffs are to enrich America again and make America great again.
It's happening, and it happens pretty quickly.
China and Canada said they would fight back with retaliatory tariffs.
But Trump's trade policy has sparked concerns that it could drive the American economy into contraction and recession.
A few days ago, the US economy's meticulous surveys weakened. The Atlanta Federal Reserve GDPNOW model estimates that US GDP will shrink at 2.8% per year between January and March.
The dollar index, which measures the greenback against a large basket of currencies, fell to 105.35 this morning, the lowest since November 11th.
A Deutsche Bank analyst said:
We announced today concerns about the loss of the dollar's safe haven status. Our view on this is evolving, and will depend on the path of US policy over the coming months, particularly to the extent that we continue to pursue disruptive domestic economic outcomes.
Stock futures refer to a higher open in Europe, indicating that Germany's DAX rose 2.3% after Germany's debt brake trade was announcedthe FTSE 100 index is expected to win 0.9% if the market is open at 8am.
Germany's two-year government bond yields rose to 2.093%, up 7.8 basis points after trading that relaxed the German debt brakes. Germany's next government partner said it would try to loosen rules for running debts to allow for higher defence spending.
The economist at Deutsche Bank called it “anythical “moment”.
CDU/CSU and SPD leaders (in discussions to form a coalition government after more than a week ago) have agreed to a more significant fiscal expansion than expected.
The plan is to make three major changes to the debt brake (which limits new borrowings to 0.35% of GDP) in a very close period, and convenes a resignation parliament where the centralists hold a constitutional majority.
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Special purpose vehicle for 500 million euros for infrastructure investment. Of this, 100 million euros will be allocated to a federal state called Länder.
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Reforms on the debt brakes to exempt defence spending of more than 1% of GDP effectively allow free-response borrowing for defense.
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Reforms debt brakes at the lender level to increase the net borrowing cap from 0% of GDP to 0.35%, as at the federal level.
Agenda
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9am GMT: Eurozone HCOB service and combined PMIS (final) in February
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9am GMT: New UK car sales in February
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9.30am GMT: S&P Global Services and Combined PMIS in February (final)
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2:30pm GMT: Bank of England Governor Andrew Bailey and other policymakers are quized by the Treasury Commission on Interest Rates
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3pm GMT: US ISM Service PMI
