LIVE MARKETS-Easing in Europe easier than US
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EASING IN EUROPE EASIER THAN US
The past week has seen rate cuts from the Bank of England, and Polish and Czech central banks, while Sweden and Norway look poised to cut in the coming months after keeping rates on hold.
In contrast, the Fed stuck to its guns and appears in no rush to loosen policy further as the impact of Trump's trade policy filters through.
"The shock of the tariff war threatens to push up both inflation and unemplyoment, creating tension between the Fed's two mandates," writes Cedric Gemehl, European economist at Gavekal Research.
"In addition, Fed policymakers are anxious not to be seen to be bowing to pressure from the White House to cut rates. All this militates against policy loosening."
In Europe, the equation is different, with most single focused on inflation.
"The temperate response of European policymakers to Donald Trump's tariffs so far has kept any domestic inflationary effects in check," writes Gemehl.
"This leaves European central banks facing an unambiguously deflationary shock."
FX markets are not yet reflecting this likely widening in short term FX differentials, with the broad dollar index =USD still down about 10% from its January high.
"With the trend likely to persist in the near term, widening differentials could begin to weigh at the margin on European currencies versus the US dollar," Gemehl adds.
(Samuel Indyk)
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FRIDAY'S OTHER LIVE MARKETS POSTS:
DAX HITS NEW RECORD ON TARIFF OPTIMISM CLICK HERE
EUROPE BEFORE THE BELL: SENTIMENT HELPED BY US-UK TRADE DEAL CLICK HERE
US-CHINA TALKS STIR HOPE, AND SCEPTICISM CLICK HERE
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