Brussels has told British Prime Minister Andy Burnham that the United Kingdom needs to lift tariffs on Chinese cars and move closer to the European Union's trade policy, in order to avoid its main exports facing potential obstacles under the "Made in Europe" rules that the bloc is developing, according to a report by the Financial Times.
According to the report, which was based on two sources familiar with the discussions, the European Union informed London, in response to its demands for similar treatment for European products, that the best solution lies in Britain joining the European Customs Union, according to Reuters.
The newspaper quoted a European official as saying, “The customs union would solve most of the problems associated with the ‘Made in Europe’ rules, and it would also address the issue of differences in customs duties, which raises concerns about the possibility of Chinese companies circumventing European duties by directing their exports through the United Kingdom.”
This week, Burnham confirmed his intention to demand that Britain be considered a “reliable partner” within the proposed rules of the “Made in the European Union” policy, warning that excluding the United Kingdom could harm the British automobile industry.
The new European policy aims to reduce dependence on Chinese components by giving priority to goods manufactured within Europe, which raises concerns for the British automotive sector, which supplies European supply chains with components and sells its cars in various EU markets.
In a related context, European Commission President Ursula von der Leyen stressed, during her “State of the Union” speech this month, that the European Union will use all available tools to reduce the trade deficit, which she described as “unsustainable” with China.
Indian government bonds fell in early trading on Friday, heading for a sixth consecutive weekly loss, while the benchmark 10-year bond yield stabilized near its highest level in four months, affected by a sharp selling wave of US Treasury bonds that negatively affected investor sentiment, ahead of a large debt auction.
New Delhi intends to issue 10-year bonds worth 340 billion rupees ($3.54 billion) later today, in a test of demand within a market already under pressure due to expectations of tightening monetary policy, rising inflation driven by oil prices, and the rise in bond yields globally, according to Reuters.
The yield on standard bonds due in 2036, with an interest rate of 6.94 percent, reached about 7.1391 percent at 11:15 a.m. local time, which is its highest level during the session since May 20, compared to 7.1067 percent at the close on Thursday.
The yield has risen by about 7 basis points since the beginning of the week, after jumping by more than 30 basis points during the previous five weeks.
The global sell-off in debt markets worsened overnight, with the 10-year US Treasury bond yield rising above 5.20 percent, recording its highest level since 2007. The 10-year Japanese bond yield also rose to 3.115 percent, a level not recorded since August 1996, while the 10-year German bond yield, which is a benchmark for the euro zone market, reached a 17-year high at 3.5798. percent.
Brent crude prices stabilized near $105 per barrel, keeping inflation risks high for India, which relies on oil imports, while investors evaluate the possibilities of reaching a truce between the United States and Iran.
After annual retail inflation in India accelerated to 4.82 percent during August, coupled with the US Federal Reserve raising interest rates earlier in the month, the majority of market participants now expect the Reserve Bank of India to raise interest rates on October 7.
A senior official at a government bank said: “It seems that raising interest rates in October is a done thing.” "It would be surprising if it didn't happen, and then the returns would be higher."
The Reserve Bank of India continues to withdraw excess liquidity from the financial system through open market sales, variable rate reverse repo operations, and put/call type FX swaps, in preparation for a tighter monetary policy.
Deutsche Bank said that more such operations are likely, while increasing the mandatory cash reserve ratio by 50 basis points remains a last option.
Interest rates
Overnight index swap rates have varied, while yield curves are already heavily priced in on expectations of interest rate hikes, limiting upside potential and attracting investor interest in interest-bearing trades.
The one-year swap rate fell by 1.25 basis points to 6.16 percent, while the two-year term settled at 6.38 percent, while the five-year term rate rose slightly to 6.6450 percent.
The US dollar rose on Friday, heading to record its second consecutive weekly gain for the first time in more than three months, supported by rising US Treasury bond yields and rising market expectations that the Federal Reserve will continue to tighten monetary policy and raise interest rates.
The rise of the US currency pushed the euro towards its lowest level in two months at $1.1370, becoming on its way to recording its third consecutive weekly loss, the longest since the end of 2025. The pound sterling also stabilized near its lowest level in three months at $1.3220, heading towards its worst weekly performance in four months, according to Reuters.
Markets strongly repriced the path of interest rates following the Federal Reserve's decision to tighten monetary policy last week, while strong economic data and new concerns about energy supplies reinforced expectations for continued rate hikes. The wave of bond selling, which pushed long-term US Treasury bond yields to their highest levels in more than 20 years, also contributed to supporting the dollar.
The dollar index, which measures the performance of the US currency against a basket of major currencies, rose by more than 1 percent this week to reach its highest level in two months, recording the first two consecutive weekly gains since last June, although the pace of the rise began to lose some momentum as it declined slightly to 101.2 points.
Khun Goh, head of Asia research at ANZ Bank, said that rising yields should support the dollar, but continued concerns about the financial situation of the United States and lack of clarity in US policy directions still limit the strength of the US currency.
He added that these factors explain the difficulty of the dollar continuing to achieve strong gains despite the continued rise in bond yields.
On the other hand, oil prices jumped by more than 3 percent on Thursday, reaching their highest level in a week, amid renewed fears of supply disruptions, which increased global inflationary risks.
Yen is under surveillance
Statements by hawkish Federal Reserve officials reinforced expectations for further rate hikes, as Philadelphia Federal Reserve Chair Anna Paulson said that “a limited amount of additional tightening may be justified,” while New York Federal Reserve Chairman John Williams considered that “an additional rate hike may be appropriate before the end of the year.”
The Japanese yen settled near its lowest level in three weeks at 158.8 yen to the dollar, after markets considered that the Bank of Japan’s raising of interest rates to the highest level in 31 years, along with its recent directives, were not strict enough.
However, the movements of the Japanese currency remained limited as traders warned of the possibility of Japanese authorities interfering in the exchange market, after new official warnings were issued by Tokyo regarding excessive currency fluctuations.
In this context, Goldman Sachs Bank lowered its expectations for the exchange rate of the dollar against the yen during the next twelve months to 150 yen instead of 165 yen previously, indicating that the accelerated pace of raising interest in Japan contributed to reducing the inflationary pressures resulting from the expansionary financial policy and eased the pressure on the currency.
As for the Australian dollar, it rose slightly to $0.7015, while the New Zealand dollar stabilized at $0.5663. Markets expect the Reserve Bank of Australia to raise interest rates by 25 basis points next week to 4.60 percent, the highest level in about 15 years, in a move that may represent the final increase in the current monetary tightening cycle.
In China, the yuan circulating outside the mainland settled at 6.715 yuan to the dollar, at a time when a summit that brought together US President Donald Trump and Chinese President Xi Jinping in Washington did not result in any tangible breakthroughs on thorny issues including artificial intelligence, trade, Taiwan, and the war with Iran.
