Month: May 2025

Last week saw some notable moves in the major currency pairs as market participants responded to economic data, geopolitical developments, and upcoming central bank decisions. Here’s a closer look at the key events and movements impacting GBP, EUR, and USD.

GBP – Sterling Strengthens
Sterling had a strong performance last week. GBP/USD reached new highs not seen since 2022, reflecting growing market confidence in the UK economy and a generally softer US dollar. Meanwhile, GBP/EUR began to recover from its April low, suggesting renewed interest in the pound against the euro. The UK is expected to sign a cooperation agreement with the EU on May 19th, potentially improving post-Brexit relations and boosting investor sentiment. In addition, a long-discussed UK-US trade deal could finally materialize by July 8th, further supporting the currency.
Bloomberg analysts forecast a 0.25% rate cut by the Bank of England, bringing the base rate down to 4.25%. However, Morgan Stanley projects a more dovish path, suggesting the Bank may implement a 0.25% cut at each of its next five meetings. If this materializes, it could gradually erode some of the pound’s recent gains. Could this outlook dampen the currency’s momentum?

EUR – Euro Softens
The euro weakened slightly last week, with EUR/USD trending lower. One possible factor was optimism surrounding potential tariff relief between China and the US, which helped bolster the dollar. Eurozone Flash Core CPI surprised to the upside at 2.7%, reigniting concerns over persistent inflation. This development may prompt the European Central Bank to reconsider the pace of its planned rate cuts. Will inflationary pressure delay their easing cycle? Looking ahead, EU negotiators are expected to present fresh trade proposals to the US this week. An agreement in principle could help the euro regain ground, especially if it successfully averts the imposition of new US tariffs on European exports.

USD – Dollar Driven by Data and Policy Expectations
The US dollar remained relatively firm, buoyed by resilient economic data. Job numbers continued to show strength, although it’s worth noting that these figures pre-date any potential fallout from recent tariff measures. On the geopolitical front, Chinese state media signaled openness to renewed trade talks with the Trump administration, which could ease tensions and support broader risk appetite. All eyes now turn to the Federal Reserve’s interest rate decision this Wednesday. While no immediate rate change is expected by most analysts, any dovish commentary could shift expectations. If the Fed holds rates steady, how will President Trump react – and could that create volatility in the markets?

In summary, sterling has gained ground on optimism around trade and cooperation deals, though the Bank of England’s potential rate path may limit further upside. The euro is facing headwinds from both trade uncertainty and rising inflation, which could slow ECB policy easing. Meanwhile, the US dollar remains data-dependent as the Fed prepares its next move in a politically sensitive environment. With key meetings and decisions looming, the coming week may offer more clarity – or more volatility. Markets will be watching closely.