29 April 2025: Has Reeves blown the only chance she had of a trade deal?

The entourage who escorted Rachel Reeves on her visit to Washington last week had fully expected to make a triumphant departure from the American capital with a secured trade deal.

The fact that they left empty-handed shows that the special relationship between the two nations, which has been slowly eroded since the days of Thatcher and Reagan, is not considered special enough to make the Trump administration feel the need to treat their British “cousins” any differently for any other nation with which the U.S. has a trading relationship.

Reeves and her team had allowed the expectation that a deal was close to grow, but it is now clear that this was more in hope than expectation.

According to the Spectator, two things have gone wrong. First, the UK government has not been willing to make the concessions that would get the trade deal over the line.

It needed a big, bold move, such as allowing chlorinated chicken or scrapping the tech tax, to persuade the White House it had won a significant victory and to enable it to make concessions in return. But the charmless Reeves didn’t grasp that she needed to offer something to the other side.

Secondly, the Starmer government is putting far too much energy into its “reset” with the EU, with Reeves clumsily arguing as she headed off for Washington that Europe mattered far more than America. But while the reset may be valuable, it won’t make much difference to the economy as Britain already has a free trade agreement with the EU (otherwise known as the Brexit agreement).

The opportunity for the UK to be the first of America’s major trading partners to agree a deal has now passed, and unless Trump can be persuaded by the red carpet being rolled out for him during his state visit, expected now to take place in September, the chance may have been lost, and the tariffs will remain on UK steel, aluminium and vehicle exports.

The Prime Minister’s efforts to create a “coalition of the willing” to support Ukraine in its war with Russia appear to have withered on the vine. Sir Keir Starmer told reporters yesterday that he was correct to blame Russian President Vladimir Putin as the aggressor in the conflict.

As Trump appears to be becoming bored with the seeming lack of progress towards a lasting and permanent ceasefire, Starmer has again tried to take up the reins.

Starmer, who called for an unconditional ceasefire, fears the Russian leader will “come back for more” if there is not a lasting solution to resolve the conflict.

Putin said the temporary pause, starting late on Wednesday, May 7, until the night of Saturday, May 10, would mark the 80th anniversary of the end of the Second World War in Europe. But Downing Street expressed scepticism, with the Prime Minister’s official spokesman telling reporters: “I think we’ll judge President Putin by his actions rather than his words.“He’s proved time and time again he’s got no interest in peace, continuing his attacks on innocent Ukrainians during previous so-called ceasefires.”

The pound began the new week falling to a low of 1.3290 but made gains throughout the day, reaching a high of 1.3442 and closing at that level.

Stories are circulating in Washington that the President is exploring the legalities of trying to remove the heads of certain public bodies, like the U.S. Postal Service and the Federal Reserve, from office despite their independence being enshrined in the Constitution.

The smokescreen that has been created in which all such bodies are being looked at is fooling no one, since it is Jerome Powell who remains firmly in Trump’s “cross-hairs”.

Since he returned to criticising the Fed Chairman during his 2024 election campaign, Trump has found little support for his “crusade. Powell has overwhelming support among economists and Wall Street analysts, even if their bosses, the CEOs of the big banks, feel that a recession is on the way.

Powell’s handling of the rise in inflation has been “textbook” in its execution, even if he has been “a tad” excessive in his recent concerns about a return to severe price increases.

The FOMC has been proved right almost every month since last Autumn, when it began to discuss a pause in interest rate cuts. Using the employment data as a bellwether of economic strength and personal consumption expenditures as a gauge of inflation, the Fed has steered the economy to the achievement of a considerable goal: a soft landing.

Even if a soft landing is a fleeting moment in time, the fact that the economy continues to grow as inflation is falling towards the goal of 2% is significant.

Trump wants rates to be cut to block out the uncertainty that has been caused by his tariff policies. Senator Elizabeth Warren who has been a critic of Powell in the past supports his independence and told TV reports at the weekend that Trump’s “red light green light red light green light” attitude to tariffs has made the creation of monetary policy almost impossible, and she supports the FOMC sitting on its hands for the time being.

The whole situation could change at the end of the week with the release of the April employment report. Trump may almost be hoping for a negative number for non-farm payrolls to pressure Powell into acting, but so far, there have been no indications of a serious enough slowdown in activity to warrant such a significant turnaround.

Nearly 100 days after Trump took the oath of office for a second time, consumer and business sentiment is switching from widespread Federal job cuts, a ping-ponging stock market and the President's on-again, off-again tariffs.

The doves are predicting that the United States could enter a recession, and millions of Americans are struggling with the continuing high cost of petrol and groceries while getting buried beneath a growing mountain of credit card bills and car payments.

The dollar index weakened slightly on Monday as markets kicked off a busy week, overshadowed by scepticism surrounding the United States' trade policy.

While US officials hinted at ongoing talks with Asian partners and “daily conversations” with China, Beijing reiterated it is not engaged in negotiations, stressing the lack of winners in a tariff war. This backdrop left the Dollar Index trading modestly lower, around the 99.33 level.

A trade war with the United States could extinguish the eurozone's fledgling recovery, and the bloc could struggle under tariffs, uncertainty and waning confidence, two European Central Bank policymakers warned on Monday.

The eurozone economy is seen as having expanded by a modest 0.2% in the first quarter, and policymakers have long predicted a recovery, which is now seen on hold, with risks skewed towards more negative outcomes due to the threat of tariffs on exports to the U.S.

"Risks have intensified amid exceptional uncertainty, largely related to trade," ECB Vice President Luis de Guindos told European lawmakers in a hearing.

He said exporters were now facing new barriers, uncertainty may weigh on business investment, and consumers could also become more cautious.

Finnish central bank chief Olli Rehn told a financial seminar that many of the negative risks the ECB had listed in the past had materialised.

"The trade war and the enormous uncertainty it brings are now holding back growth," Rehn said. "Some of the downside risks foreseen in the ECB’s March projections have already materialised, and as a result, the growth outlook has further weakened."

Trade barriers slow growth and have already lowered energy prices and pushed up the value of the euro, creating a drag on prices. Also, China could dump on the euro area some of its products shut out of the United States, lowering inflation further.

"I find it reasonable to assume that there are downside risks to the inflation outlook in the ECB’s March projections," Rehn said.

De Guindos took a more measured view on inflation, saying it was now set to hover around the bank's 2% target.

However, that is also a shift in the bank's earlier view, which was that disinflation was on track and price growth would break possibly the ECB's target later this year.

Staff concerns over favouritism at the European Central Bank have spiralled over the last decade, further eroding trust in its top management, according to a fresh survey conducted by the bank’s trade union.

The revelations, from the International and European Public Services Organisation, are the latest evidence of widespread discontent among ECB staff with their leadership, especially President Christine Lagarde. The survey found “little or no trust” in the six-strong Executive Board, and even less in Lagarde personally, among a majority of those responding.

By contrast, only 8% of respondents expressed a high degree of trust in the Board.

While this would seem to be an internal matter for the Central Bank, undermining the executive board may have wide-reaching consequences for monetary policy, given the influence the board has over the Governing Council, and any changes in its makeup would have a major effect.

The Euro again tested support around the 1.1310/20 level yesterday and attracted further buying, which pushed it up to close at 1.1428.

Have a great day!