Donald Trump recently announced a bilateral trade agreement with a country he called a “very highly respected country.” This announcement was made quite literally through a post on Truth Social, attracting rapt attention and scrutiny from investors and market analysts across the globe. The declaration arrives during an unprecedentedly turbulent time within the foreign exchange market. Specifically, the EUR/GBP currency pair fell as low as 0.8470 during the overnight hours of North America on Thursday.
This increase can be traced back to the Bank of England’s (BoE) most recent monetary policy decision. The BoE decided to lower rates at a measured pace. At the same time, they increased their forecasts for GDP growth on the year. Only seven of the nine members of the Monetary Policy Committee (MPC) voted to cut interest rates. This decision underscores their fears of a growing economic threat. Chief Economist Huw Pill and member Catherine Mann were vocal proponents of maintaining rates at a 4.5% rate. They claim it is necessary to keep this high bar for economic certainty.
Market analysts had been anticipating a 25 basis point cut to interest rates. They grounded this prediction on risks, most notably, tariffs that Trump has already declared, in early April. The tariffs have raised fears over how they might impact US-UK trade relations. That’s what makes the announcement of the upcoming trade deal so important for investors.
As investors await further details on the US-UK trade deal, set to be unveiled by Trump at 14:00 GMT, they remain focused on how this agreement may influence economic stability and growth in both nations. The prospects for better trade relations count among the biggest and most welcome clouds of silver lining in what still looks like a tempestuous global market.
Trump’s announcement of a new trade deal has upended that. At the same time, the Bank of England’s monetary policy reversal has made things even more complicated for traders and investors. The GBP’s recent appreciation against the euro demonstrates the short-term market reaction to such positive developments.