Tag: Europe

ECB Holds Interest Rates Steady

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There were no surprises for financial markets as today and for the second meeting in a row the ECB, (European Central Bank) kept their key deposit rate unchanged at 2%. Officials at the ECB advised that inflation was under control and any economic pressures were abating but remained tight-lipped on future policy decisions. Experts suggest that investors have concluded that rate cuts have now come to an end with the President of the ECB Christine Lagarde announcing that “inflation is where we want it to be.”

Between June 2024 and June 2025, the ECB has halved its key deposit rate and has been held at 2% with President Lagarde going  on to say, “We continue to be in a good place”. Policymakers advise that the central bank see inflation falling below their benchmark target of 2% in 2026 with President Lagarde saying, “risks were more balanced” and adding “ Two things have clearly moved out of our radar screen when it comes to downside risk, the first one is risk of European retaliation the second thing… is that trade uncertainty has clearly diminished.

Interestingly the ECB also sees headline inflation hitting 1.9% in 2027 which is below their projected figure as advised in June of this year with core inflation hitting the 1.8% mark which is also below the ECB’s predicted target of 2%. When questioned on the discrepancies President Lagarde said, “We have indicated very clearly in our strategy that minimal deviations, if they remain minimal and not long-lasting, will not justify any particular movement”. Experts say that financial markets are pricing in only a 40% chance of a further rate cut by Q2 2026, this despite their predictions that the United States Federal Reserve will cut interest rates six times by the close of business 2026.

With regards to tariffs and after weeks of heated negotiations the EU (European Union) and Washington finally arrived at a trade agreement in late July of this year with an agreement of a blanket tariff on most exports including cars to the USA of 15%, half of the original 30% imposed by President Trump. In return the EU agreed to purchase USD 750 Billion’s worth of U.S. energy and invest an additional USD 600 Billion worth of investment  into the USA above current levels. President Lagarde noted that uncertainty about global trade has eased after a number of tariff deals including that of the EU.

One problem that looms large for the ECB is the parlous state of French politics and their economy which has pushed French bond yields increasingly higher. Experts say that whilst the ECB has the financial muscle to intervene it is only when unwarranted and disorderly rise in borrowing costs. When questioned on the point President Lagarde said that the Euro Zone sovereign bond markets were orderly and functioning with smooth liquidity. The word coming out of the ECB as described by some experts is that they feel rates are appropriate to cope with the fallout from President Trump’s tariffs, the current geopolitical tensions and any upcoming political and economic tensions in France.

U.S. Investment Surges into European AI – A Swiss Perspective

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Since pulling back during 2023’s tech downturn, U.S. investors are once again muscling into deal flows in Europe – and AI is the magnet. Data released by PitchBook* shows the U.S. share of deal making in Europe is once again climbing, and the standout category which is pulling American investors back into the market is AI. Experts suggest that from a global perspective, the capital base is there as U.S. private investment in AI in 2024 was circa USD 109 Billion with ample dry powder** to deploy into the European markets when the time is right.

*PitchBook – Is the premier resource for comprehensive, best-in-class data and insights on the global capital markets.

**Dry Powder – This refers to unallocated cash reserves or highly liquid assets held by investment firms, venture capital funds, hedge funds, and private individuals which in this case is ready to be deployed for investment purposes.

A Brief Overview

From a Swiss vantage point there are three forces which are converging and the first is a dense research-to- start-up pipeline anchored by ETH Zurich and EPFL.

ETH Zurich is a public research university and is widely regarded as a leading institution known for its strong focus on science and technology, significant research contributions, and prestigious academic standings.

Based in Lausanne, EPFL is Europe’s most cosmopolitan university and it welcomes students, professors, and collaborators from more than 120 different countries. EPFL has both Swiss and international vocation and focuses/specialises on three different missions being teaching, research, and innovation.

The second force is regulatory clarity via the EU AI Act, with Switzerland chartering a lighter sector-based path.

The third force is Switzerland’s world-class infrastructure and their electricity reliability which makes the country (and its neighbours) a first-class destination to build and run AI.

Why Switzerland Hits the Sweet Spot

Talent and Spin-Out Velocity

ETH Zurich’s AI ecosystem is a massive magnet to investors as in 2024 ETH spinoffs raised CHF 425 Million across 42 rounds, a ten year ten times increase and a powerful sign that even in choppy markets the pipeline to start-ups is in a healthy state. Indeed, the ETH A1 centre’s network of affiliated start-ups spans applied robotics, industrial AI, and model reliability which according to experts is exactly where corporates from the United States are looking to invest their capital.

Regulatory Readability

As opposed to the EU’S (European Union) horizontal* AI Act**, Switzerland’s Federal Council chose a more sector-specific approach, integrating AI duties into existing laws whilst planning to implement the Council of Europe’s AI convention. This they felt would be more beneficial, rather than passing a sweeping one size fits all AI law, which for founders and investors reduces the legislative shock whilst still tracking the usual international norms on safety and rights. It should be noted that the EU AI Act is highly relevant to Swiss companies who are selling into the Eurozone/single market, as for example obligations for general purpose AI (GPAI)*** and the EU is ensuring that timelines do not slip. All in all, the dexterity and agility of the Swiss together with the EU-grade clarity on market entry makes investment decisions by U.S. investors much easier.

*Horizontal in Law – This refers to the ability of legal requirements meant to apply only to public bodies to affect private rights. It arises where a court dealing with a legal dispute between two private entities interprets a legal provision to be consistent with certain legal norms in such a way as to affect the legal rights and obligations of the parties before it.

**EU AI Act – On 12th July 2025 this Act was published in the Official Journal of the European Union and entered into Law and became binding on 1st August 2025. This Act refers to the European Union’s Artificial Intelligence, a comprehensive regulation aimed at governing the development and use of artificial intelligence systems within the EU. It is the first major AI regulation of its kind, and focuses on risk assessment, and categorisation of AI systems to ensure safety and ethical development.

***GPAI – This refers to all General-Purpose AI models as defined within the EU AI Act. These are powerful AI models trained on broad datasets****, capable of performing a wide range of tasks, and potentially integrated into various downstream AI systems. The EU AI Act places significant obligations on providers of these models, especially those with systemic risks.

****Datasets – This is a structured collection of data used to train and test artificial intelligence models. These datasets provide the raw materials for AI algorithms to learn patterns, make predictions, and perform tasks and can, simply put, be viewed as a textbook from which AI models can learn.

Infrastructure Gravity

The Alps supercomputer at the CSCS (Swiss National Supercomputing Centre) is a critical component offering significant processing power for AI applications and is a key part of the AI initiative at positioning Switzerland as a leading hub for trustworthy AI development. Overall, the build-out of AI in Europe is accelerating fast with San Francisco’s Open AI Inc launching their Stargate Norway, the first AI data centre initiative in Europe. Whilst this build does not situate itself in Switzerland, its proximity and any grid stability across the region changes the equation as to where to build AI-heavy companies and experts suggest that Switzerland is primed as a European hub that U.S. investors will back for “near-compute*” opportunities.

*Near-Compute – This refers to the concept of placing processing units (like CPU’s – central processing unit or GPU’s – graphic processing unit) closer to memory or even within the memory itself, rather than relying solely on traditional computing architectures. This approach aims to minimize data movement between memory and processing units which can significantly reduce latency and energy consumption.

Switzerland has enjoyed a number of AI deals such as Meteomatics in St Gallen, a USD 22 Million to scale high-resolution AI-enhanced weather models and drone systems selling into the automotive, aviation, and energy sectors. Another success is Daedalean the Zurich avionics-AI pioneer has just entered into (subject to closing a USD 200 Million acquisition by Destinus a big player in the European aerospace sector, who pioneer autonomous flight systems. Other successes included Zurich’s LatticeFlow, an AI governance and reliability model and ANYbotics which operates in the robotic sector and industrial AI.

Conclusion

Whilst Switzerland’s overall start-up funding cooled in 2024 (down CHF 2.3 Billion which is -15% Y-O-Y), interestingly AI rounds doubled accounting for 22% of all rounds, and is uniquely placed due to infrastructure, power/electricity, the ability to build AI with EU-Act readiness, the ability to stand next to compute, and the ability to use the country’s events and clusters as magnets for U.S and global investment. The macro capital tide is unmistakable with generative AI venture capital setting a new pace in Q1 and Q2 in 2025, and Switzerland sits first and third in Europe and globally respectively for Deep Tech venture capital funding per capita, which, according to experts indicates a strong international interest in the country’s AI ecosystem.

Furthermore, Microsoft has made substantial investments in Switzerland’s AI and cloud infrastructure including a USD 400 Million investment (announced in June of this year) to expand its datacentres near Zurich and Geneva which will meet growing demand for AI services whilst keeping data within the country’s borders. As mentioned before, the companies from the United States are taking bigger and bigger slices of the European AI action, and Switzerland will, according to experts, massively benefit because it pairs deep technical IP and enterprise-friendly regulation with direct access to the Eurozone’s markets.

Overview of the New Trade Agreement Between the European Union and the United States

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On Sunday 27th July, and after weeks of tense behind the scenes negotiations, the President of the European Union, Ursula von de Leyen, shook hands with United States President, Donald Trump, concluding a trade pact a week before the upcoming deadline as set by the White House. The trade deal was announced by the two leaders at Donald Trump’s golf course, Turnberry, located in Ayrshire, West Scotland. Those close to the negotiations said the “framework deal” was finally stuck, and ultimately it took a face-to-face meeting between the two leaders to reach an agreement. However, a number of EU member countries have already voiced their disapproval and in some cases outright hostility to the agreement.

The White House administration has lauded the agreement as a big win for Donald Trump, advising that based on last year’s trade figures the US governments will be better off by circa USD 90 Billion. Furthermore, included in the agreement is the EU’s promise to purchase arms and energy products from the United States which analysts estimate to be in the region of hundreds of billions of US Dollars. Elsewhere, carmakers in the EU will only face a 15% surcharge on imports into America, whereas the global tariff introduced in April is 25%. Indeed, the Eurozone agreement to a 15% tariff on most exports (steel will remain at 50%) to the United States has prevented a trade war which would have probably dealt a hammer blow to the global economy.

Not all European leaders were happy with the agreement with initial words coming from Benjamin Haddad, France’s Junior Minister for Foreign Affairs, who called the agreement “unbalanced”, Hanneke Boerma, the Dutch Minister for Foreign Trade, said the deal was “not ideal” and urged further negotiations with the United States, and the French Prime Minister Francois Bayou said it was “tantamount to a submission”. On Wednesday 30th July France’s President, Emmanuel Macron, said the deal is “not the end of it”. He went on to say that “the European Union had not been feared enough in negotiations with the United States towards a trade deal”, pledging to be firm in follow-up talks. Meanwhile, Friedrich Merz, the German Chancellor, said the agreement would “substantially damage the nation’s finances”, France’s far right leader, Marine Le Pen, said the agreement was a “political, economic and moral fiasco”, whilst the Hungarian leader, Viktor Orban, announced that “Trump had eaten von de Leyen for breakfast”.

A number of experts have already said that this is a bad deal for the European Union. In fact, when Great Britain announced a 10% tariff agreement with the United States, the statement that came out of Brussels was “we will never accept such humiliating terms”. Analysts now suggest that the hit to the EU’s economy would be 0.4 percentage points by the end of 2026 and the average tariffs on imports from the Union are set to rise from 1.5% (when Trump was elected) to circa 16%. Meanwhile, experts are suggesting that the EU is now a pushover and will have a weakened hand in future negotiations, and recently the Sino/EU trade negotiations came to nought partly as in part the Chinese would not make any concessions to a European Union that lacks leverage.

However, von der Leyen said the deal avoided the near-term catastrophe of an all-out trade war and had nullified any near-term uncertainty. Sadly, some experts and economists have said there is a perception that the European Union cannot defend their own interests which will undermine their position as a key geopolitical player which is the key to their wish for the Euro to play a bigger global role. Indeed, the president of the European Central Bank, Christine Lagarde, recently advocated a greater international role for the Euro, specifically its active function as an international reserve currency. Experts suggest that since the US/EU trade agreement such words may well fall on deaf ears. The US/EU trade agreement is not a done deal, just look at all the negative comments and outright hostility being shown by some member countries towards this agreement, and it suggests some very choppy seas are just around the corner.

Swiss National Bank Cuts Interest Rates to Zero

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On Thursday 19th June, the SNB (Swiss National Bank) announced their benchmark interest rate was being cut by 25 basis points to zero and is now standing very close to a negative interest rate for the first time since 2022. However, the SNB has not ruled out moving the interest rate into negative territory and the Chairman, Martin Schlegel, stressed that such a move would be subject to great deliberation. The current decision has confirmed that the interest rate is the lowest against their global counterparts.

Chairman Schlegel in a radio interview said, “We are aware that negative interest rates are a challenge for many of our stakeholders in the economy. Negative rates also have negative side effects for savers, bankers, pension funds, and so on – we are very aware of that. If we were to lower rates into negative territory, then the hurdles would certainly be higher than with a normal rate cut in positive territory. When questioned about a rate cut at the next meeting on Thursday 25th September 2025, Chairman Schlegel sat on the fence stressing that officials will weigh data and forecasts at that time.

The cut in interest rates by a ¼ of 1% is the sixth consecutive cut by the SNB forced on the bank by the current strength of Swiss Franc which has caused consumer prices to drop for the first time in four years. President Schlegel was quoted as saying, “the SNB is attempting to counter lower inflationary pressure” and went on to stress “We will continue to monitor the situation closely and adjust our monetary policy if necessary. The SNB had indicated back in March of this year that monetary easing was probably finished, but the currency’s role as a safe haven from global economic turmoil forced their hand, and they have hinted that more cuts may be necessary to stop inflows of the Swiss Franc.

Once again President Trump and his tariff policy which has disrupted global trade underscores the impact it has had on Switzerland. Dramatic shifts in policy by the current administration in the United States has certainly deeply worried investors with the result the Swiss Franc has risen to its highest level against the US Dollar, whilst in Q1 of this year inflation was driven below zero for the first time since March 2021. Another option to control the Swiss Franc is intervention in the foreign exchange markets, but this brings political pressure as Donal Trump has already accused Switzerland of being currency manipulators, a statement vehemently denied by Chairman Schlegel.

There is disagreement within the financial markets with some experts suggesting that unless the situation drastically changes between now and September that the current decision to cut interest rates to zero paves the way for a further cut in September pushing interest rates into negative territory. However, countering this argument other experts have said that unless higher tariffs cause a significant downturn in the Swiss economy the SNB were likely to hold at 0.00%. Current bets on another rate cut have been factored in by money markets at 57%. However, Switzerland’s two-year bond yield, which is highly rate sensitive, remains in negative territory, is a sign that financial markets still anticipate a September cut.

The Debanking Crisis and How to Rebuild Financial Confidence

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A new financial phenomenon has in recent years swept through the financial world and it is known as “DEBANKING”. Debanking occurs when a bank, at any time and in any place, closes a corporate, personal, or private account – or refuses to open one – without warning or providing any plausible or straightforward reason. Banking clients may have been with their bank for a short period of time or may have been with them for years, but the client can wake up one morning to find they have no banking facilities.

This means no cash or debit card, no visa card, any banking facilities will have been cancelled, they have been financially frozen out of the system, and there is nothing clients can do about it; there is no recourse. What many citizens and corporates across the globe don’t know is that debanking is not just an internal compliance issue when fraud, money laundering, terrorist funding or other criminal or illicit activity is discovered. Indeed, the innocent, law-abiding (never even has a parking ticket) individuals or entities can be kicked out without any due process; there is no appeal.

A question many in the financial industry have been asked is “When did debanking start”? The answers are somewhat fuzzy, but in essence the concept of debanking, particularly in a political or disruptive motivated context, never really had a fixed beginning date. It is a theme or phenomenon that has occurred throughout history evolving over time but has gained much traction and press awareness in recent years. Indeed, a high-profile debanking event took place in the United Kingdom when in 2021 NatWest Bank debanked a senior British political figure, Mr Nigel Farage MP* leader of the Reform Party.

*Nigel Farage – Nearly two years after NatWest Group closed his accounts at their wholly owned private wealth subsidiary Coutts & Co, the then CEO Dame Alison Rose resigned. Although the bank said the account was closed due to Mr Farage accounts falling below the required thresholds, Mr Farage obtained a document stating that the bank were at odds with his political views. The case was settled privately where the bank paid Mr Farage an out of court settlement, but political motivation in the case was never proved.

The Farage case highlighted the problems innocent individuals and entities face in today’s banking world. In the United Kingdom alone, in 2024 circa 408,000 were closed without appeal as opposed to 45,000 in 2016 – 2017. The same is happening in the United States, Europe and elsewhere in the world. The main focus on account closures by banks are se workers, (legal in the UK), migrants, refugees, those with poor financial histories, the homeless, PEP’s (Politically Exposed Persons), small business and those with links to crypto, (especially prevalent int the United States in recent years).

To this end, IntaCapital Swiss SA Geneva, will be pleased to hear from any high-net-worth individuals who have suffered the ignominy of having their banking facilities removed without any reasons given, with absolutely no chance of appeal or access to a recourse process.

The European Central Bank Cuts Interest Rates

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Today the ECB (European Central Bank) for the eighth time in a year cut interest rates by 25 basis points leaving the deposit rate standing at 2%. The governing council were unanimous in their decision to cut three key interest rates with the President of the ECB Christine Lagarde saying that following the eighth reduction the ECB is coming to the end of the line with regard to interest rate reductions and their monetary policy cycle. The President told reporters “At the current level of interest rates, we believe that we are in a good position to navigate the uncertain conditions that will be coming up”.

Officials from the ECB describe inflation as “currently around” the 2% target. New quarterly projections issued by the ECB show inflation in 2026 at 1.6% which is below the current target, with the economy expected to expand by 1.1% in the same year. In another statement issued by the ECB it was said that trade uncertainty is likely to weigh on business investment and exports, however growth will be boosted later by government investment in infrastructure and defence.

President Lagarde also referred to growth skewed to the downside but was cheered by the fact that easier financing, a strong labour market and rising incomes should help firms and consumers withstand the fallout from a global environment suffering from severe volatility. She went on to say that despite a stronger euro weighing on inflation in the near term and decreasing emerging costs, inflation is expected to return to target in 2027.

There is of course the continuing problem of the Trump2 Presidency and tariffs. Currently most European exports are facing tariffs of 10% (except steel and aluminium which now has a global tariff of 50% except the United Kingdom who are paying 25%), however levies will rise to 50% should trade negotiations between the European Union and the United States remain deadlocked and no agreement is reached by July 9th 2025. However, the German Chancellor Friedrich Merz will shortly be meeting with President Trump and one of the main topics if not THE main topic will be trade, and Europe will hope something positive will come from this meeting.

The cut in interest rates had been largely priced in by traders with LSEG (London Stock Exchange Group) data showing the ¼ of 1% cut had a 90% chance of going through before the announcement was made. Financial markets have trimmed their bets on another ¼% reduction in rates as this move no longer seems certain. The economic policies of President Trump, his attacks on the Chairman of the Federal Reserve and his flip flopping on tariffs, has dented confidence in the U.S. economy, has strengthened the Euro, brought energy costs down and had a positive effect on European inflation. All eyes will be on July 9th, the set by Donald Trump for the EU and the U.S to agree a trade deal.

Trump’s Tariffs Hobble U.S. Markets Whilst European Stocks Forge Ahead

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The week ending 30th May 2025 saw equities in Europe as a clear winner globally, whilst tariffs and trade wars initiated by President Trump have hampered and shackled the markets in the United States. Recent data released showed that out of the world’s ten best performing stock markets, eight can be found in Europe. Indeed, this year in US Dollar terms Germany’s DAX Index* has rallied in excess of 30% including such peripheral markets as Hungary. Poland, Greece, and Slovenia.

*The DAX Index – The DAX or its full name Deutsche Aktien index 40, is Germany’s benchmark stock market index, and reflects the performance of 40 of the largest and most liquid German companies trading on the Frankfurt Stock Exchange. It is a key indicator of the health of the German economy.

The European STOXX 600 Index* is currently beating the U.S. S&P 500 by 18% (reflected in dollar terms) which as data shows is a record, which experts advise is being powered by a stronger Euro and Germany’s strong fiscal spending plan both current and in the past. Market analysts with knowledge of this arena suggest there is more to come due to attractive valuations and resilient corporate earnings, which when compared to America’s which is being gripped by fiscal and trade debt, make Europe a safer bet.

*European STOXX 600 Index – This index is a broad measure of the European Equity Market. Based in Zug, Switzerland, it has a fixed number of components and provides extensive and diversified coverage across 17 countries and 11 industries within Europe’s developed economies, representing circa 90% of the underlying investible market.

Equity bull experts suggest that Europe is back on the investment map, with some investment managers saying that recently there has been more European interest from investors than there has been in the last decade. Bulls went on to say that this rally may well be self-feeding and if European stocks continue to rise, they will be likely to attract fresh investment from the rest of the world. Indeed, some analysts suggest that if the trend away from America continues over the next five years the European markets could expect an inflow of circa USD 1.4 Trillion (Euros 1.4 Trillion.) Analysts suggest the gains so far this year were the result of a proposal by the German government to spend hundreds of billions of Euros on defence and infrastructure with some economists suggesting that this will boost growth across the European bloc from Q2 2026.

Elsewhere, a slew of Europe’s peripheral markets have had performances that have made investors sit up. For example, Slovenia’s SBI TOP Index is, according to data released, the second-best performing stock market up 42% (in dollar terms) just behind Ghana’s benchmark the Ghana Stock Exchange GSE-CI, (tracks all the performance of all company’s trade on the Ghana Stock Exchange). Other peripheral stock exchanges that have done well are Poland’s WIG20) Index up 40% whilst the benchmarks in both Hungary and Greece are both up circa 34%.

Experts suggest that 2025 could be a good year for European Stock Markets as some professionals are already betting that European stocks will outperform their counterparts in America. President Trump’s tariffs, the loss of the country’s AAA status, looming trade wars, and the current fiscal deficit of USD 1.9 Trillion (and predicted to climb), are all factors as to why investors are turning their backs on the US markets. Whether this will last, we will have to wait and see if all of Donald Trump’s predictions come true. Meanwhile back in Europe data released show that corporate earnings are in the spotlight having risen 5.3% in Q1 2025 against predictions of a 1.5% decline, another reason to perhaps bet on Europe.

Trump Reignites Trade War with EU as he Threatens 50% Tariffs on the Bloc

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On Friday 23rd May, President Trump threatened to impose a 50% tariff on June 1st, 2025, on the EU (European Union) stating that current negotiations on trade between Washington and Brussels were going nowhere. President Trump has been complaining for a long time that the EU bloc has been unlawfully targeting U.S. companies with regulations and lawsuits, plus he feels that the Europeans have been deliberately taking their time over the current trade negotiations. Originally, on “Liberation Day” 2nd April 2025, the EU had been marked down for 20% tariffs, but were reduced to 10% until July 9th, to give enough time for trade talks to find common ground and a solution.

In response to the tariff threats by President Trump, the EU Trade Commissioner, Maroš Šefčovič, said “EU/US trade is unmatched and must be guided by mutual respect, not threats. We stand ready to defend our interests”. He went on to stress “the EU’s fully engaged, committed to securing a deal that works for both of us”. Many of the European governments reacted to the tariff threat warning that higher tariffs would indeed be damaging to both sides. Meanwhile, back in the Oval Office, President Trump also announced to reporters that new tariffs would be imposed unless EU companies moved their operations to the United States.

However, on Monday 27th May, following a phone call between the President of the European Commission Ursula von der Leyen and Donald Trump, where the EU signalled a more conciliatory approach by agreeing to accelerate trade talks, the President of the United States agreed to extend the 50% tariff deadline to July 9th, 2025. Experts suggest that one of the major roadblocks that face the EU is that they feel America is not making it clear exactly what they want, and they still do not know who is speaking for the President. EU Trade Commissioner Maros Sefcovic has spoken twice with U.S. Commerce Secretary with his statements adopting a more malleable tone, gone was the previous rhetoric of “we will defend our interest rates”.

After Trump’s announcement last Friday, the markets reacted with the usual predictability with the Nasdaq down 1%, the broader S%P 500 down 0.68%, the STOXX EUROPE 600 index down 0.68%, Germany’s Dax and France’s Cac 40 both ended the day down over 1.5%. The US Dollar took a beating again, down by as much as 0.8% on the Bloomberg Dollar Spot Index*, slumping to its lowest level since 2023. Experts suggest that the threat of punitive tariffs then removing that threat gives many investors and traders in the financial markets a lack of confidence in the Presidency translating to a lack of confidence in the greenback. Whilst many indexes recovered on Monday 26th May, the US Dollar continued its decline which not only included the slap happy way tariffs are doled out, but also Trump’s tax bill which is expected to add hundreds of billions to the federal deficit. Meanwhile data released from the Commodities Futures Trading Commission show hedge funds, asset managers and other speculative traders continued to bet against the US Dollar.

*Bloomberg Dollar Spot Index – This index is a benchmark that tracks the performance of the US Dollar against a basket of major global currencies. It’s designed to provide a

comprehensive view of the dollar’s strength by including currencies from both developed and emerging markets that are significant in international trade and liquidity.

A full-blown trade war between the EU and the United States is according to experts not in anyone’s interests. The repercussions to both protagonists’ economies would be negative and will undoubtedly have a downside effect on global trade as well. No matter what is currently being said, both the U.S. and the E.U. are miles apart in their negotiations, with President Trump having already rebuffed a trade deal from the E.U. last Thursday 22nd May. Despite improved rhetoric from both sides those close to the negotiations are fearful that come July 9th, 2025, a consensus may not have been reached.

The European Central Bank Cuts Interest Rates

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Today, for the seventh time since June 2024, the ECB (European Central Bank) cut interest rates by 25 basis points, with the key deposit rate now standing at 2.25%, which according to data released by LSEG (London Stock Exchange Group) was anticipated by 94% of financial markets. Experts suggest that the cut comes amidst global economic and geopolitical uncertainty giving fears to falling economic growth within the Eurozone economies. The decision to cut rates by a 1/4 of 1%, was according to the President of the ECB Christine Lagarde, unanimous, with no member arguing for any other type of cut.

In a statement, President Lagarde advised, “Downside risks to economic growth have increased, with a major escalation in global trade tensions and associated uncertainties, will likely lower euro-area growth by dampening exports, and it may drag down investment and consumption. Deteriorating financial market sentiment could lead to tighter financing conditions”. Earlier this month the ECB was, according to experts, ruminating as to whether or not to hold interest rates, but Donald Trump’s tariffs soon put a stop to that, ensuring a unanimous vote today to cut interest rates.

The policy move to cut interest rates also became more attractive as data revealed that the ECB’s benchmark target rate of inflation of 2% was on the road to being achieved, whilst at the same time falling inflation was given a boost by falling energy costs. However, experts are fearful that potential tariffs of 25% and an all-out Eurozone U.S.A. trade war will banish hopes of revival in the economies of the European Union membership countries. Currently experts are predicting another cut in interest rates at the next ECB meeting in June this year, where the rate will then be held at 2% for the rest of the year. However, ever increasing market volatility has left some analysts suggesting even further cuts in the cost of borrowing after the June announcement.

The ECB also announced that in future they will not be pre-committing to any particular rate path, indeed interest rate decisions will be based on its assessment on the inflation outlook in light of incoming financial and economic data, the dynamics of underlying inflation, and the strength of monetary policy transmissions. As far as the Euro is concerned, the common currency has this month strengthened as investor sentiment has proved less resilient to other economies and more resilient towards the Euro arena. Once again, all eyes are on President Trump and the EU trade negotiating team to see if they can come to an agreeable solution regarding tariffs.

European Union Looking to Avoid a Trade War with the United States

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Ever since Donald Trump was re-elected to the White House on Monday 20th January 2025, the European Union has been preparing counter measures to the new president’s tariffs, which would mark the beginning of a trade war with the United States. However, with President Trump pulling his tariffs at the last minute with both Canada and Mexico*, the EU has become emboldened and feel that they can come to a negotiated agreement with the Trump administration regarding tariffs.

*Canada and Mexico – Tariffs of 25% on goods from both counties were due to begin on Tuesday 4th February 2025, but after conversations between Donald Trump and the President of Mexico Claudia Sheinbaum followed by a conversation with the Prime Minister of Canada Justin Trudeau, President Trump delayed tariffs for one month. Both the leaders of Canada and Mexico agreed to up the ante in fighting migration and the flow of fentanyl into the United States, key demands by the US administration to avoid tariffs.

However, there is, according to person(s) close to the EU’s executive arm in charge of trading, a major stumbling block with the EU’s strategy as they have been unable to establish decent contacts within the new administration, with some key posts still awaiting senate confirmation. Furthermore in March, the exports of steel and aluminium will be discussed, and the EU will look to avoid conflict on this matter which has been brewing for some time. The Eu will also wish to get agreements with the new administration and avoid tariffs, especially as recent increased rhetoric from President Trump aimed directly at the European Union said that due to large trade deficits with the eurozone means that tariffs are definitely on their way.

In view of President Trump’s remarks the President of the European Union Ursula von der Leyen said” When targeted unfairly and arbitrarily, the European Union will respond firmly”. However, what the EU has to take into account is that the angst that President Trump has towards the bloc goes back a long way, so getting agreements on tariffs may prove a lot more difficult.

Furthermore, Germany’s Chancellor Olaf Scholz is currently making a habit of dissing President Trump, plus his pre-election remarks making it quite clear he was voting for Kamala Harris for the White House, will not exactly endear himself to the new president. Germany will also be in President Trump’s crosshairs as they have a massive trade surplus with the USA of in excess of USD 63.3 Billion as of close of business 2023.

Experts are suggesting that if indeed President Trump announces tariffs on the European Union the response may initially be muted along the lines of the Chinese who announced retaliatory tariffs on imports of US oil and Energy among other levies, but which amounted to less than USD 5 Billion. The word on the street is that the EU may feel that President Trump is using tariffs as a diplomatic club or hammer to get his own way on his policies (e.g. Canada and Mexico).

The EU may well have to increase their Defence/NATO spending, an ongoing demand from President Trump, and make concessions regarding the Russia/Ukraine war. No doubt policymakers are well aware of these demands and only time will tell if indeed the USA and the European Union can come to an agreement on tariffs, but with the bloc suffering from a deepening economic and political malaise, President Trump may well hold the winning hand. It must be remembered that at the recent World Economic Forum in Davos the President of the United States was quoted as saying “the EU treats us very very unfairly, very badly”, so Europe has been forewarned.

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