Category: Market Report

Markets at a Crossroads: Currencies React to Political Pressure and Economic Surprises

The currency markets are navigating a web of uncertainty, with political risks, inflation surprises, and shifting central bank tones steering sentiment in unpredictable directions. As we near key economic and political milestones, investors are questioning whether recent trends have further to run, or whether the tide is about to turn.

GBP: Strength Built on Unsteady Foundations?

Sterling has surged to levels against the dollar not seen since February 2022, powered by a cocktail of stronger-than-expected UK retail sales, stubborn inflation now sitting at 3.5%, and comments from a hawkish Bank of England economist that hinted at further tightening. This resilience has added weight to market expectations of sustained monetary policy divergence between the UK and the US.

Yet, the question remains; will this momentum last? Much will hinge on the tone adopted by Bank of England Deputy Governor Lombardelli in the coming days. If she echoes last week’s hawkish rhetoric, markets could be forced to reprice the BoE’s rate path once again. But any signal of hesitation could leave GBP vulnerable to a sharp correction, especially as we approach month-end portfolio rebalancing flows. For now, GBP bulls are enjoying the ride, but the road ahead remains fraught with uncertainty.

EUR: Political Crosswinds vs Economic Surprises

The euro is quietly holding firm, supported by a broadly constructive tone from European Central Bank officials and stronger-than-expected German Q1 GDP data. The economic beat is thought to reflect a wave of advance orders placed before new US tariffs on April 2nd, momentum that may not last into Q2.

At the same time, trade tensions with the US are bubbling once more. EU negotiators admit that progress has stalled, while former US President Donald Trump, now an active force in markets again, has floated the idea of a punitive 50% tariff on EU imports, possibly from June 1st. As political risks rise, the euro’s recent strength may be tested. Will it continue to benefit from ECB support, or will renewed US-EU friction dampen investor appetite for the single currency?

USD: Fractures Emerging in the Foundation?

The US dollar faces a storm of headwinds, both fiscal and political. President Trump’s tax bill has cleared the House of Representatives, but with Moody’s downgrading US debt and bond yields climbing, especially the 30-year Treasury yield nearing levels last seen ahead of the 2007 crisis, investors are growing wary of long-term stability.

The July 8th expiry of the US-EU reciprocal tariff pause adds yet another layer of geopolitical risk, raising questions over the dollar’s safe-haven status. Meanwhile, President Trump is pushing to enshrine his tax reforms into law by Independence Day, an ambition that could inject further volatility into the bond market. With confidence wobbling and inflationary pressures simmering, the greenback is under pressure. Can it find its footing again, or is this the beginning of a longer-term slide?

Conclusion: Trend or Turning Point?

With monetary policy signals diverging, political tensions rising, and macro data surprising on both sides of the Atlantic, the major currencies are at an inflection point. GBP’s strength is grounded in firm, but perhaps fleeting, data. The euro faces external pressure despite internal support. And the dollar is looking vulnerable amid growing fiscal concerns and weakening global confidence.

As we move into the next phase of the economic cycle, the question isn’t just which currency will strengthen, but whether any of them can do so on solid footing. Investors should prepare for turbulence ahead. What looks like momentum today may turn out to be a mirage tomorrow.

As global trade relationships come under increasing strain, this week offers a revealing snapshot of how major economies are coping with the ripple effects, from inflation pressures to political manoeuvring. With pivotal UK, EU, and US data and developments on the calendar, investors will be watching closely for signs of stability… or further volatility. Here’s what to watch.

GBP: Can the UK Turn Trade Talk into Market Confidence?

Sterling starts the week with an eye on diplomacy. Monday’s UK-EU summit could offer a rare glimmer of clarity, especially if it results in concrete cooperation or progress on post-Brexit trade issues. But sterling is still vulnerable to sentiment-driven swings — and markets will want substance over symbolism.

Last week’s cooler-than-expected US inflation data has reignited debate over whether the UK will follow suit. All eyes now turn to Wednesday’s CPI figures. If price growth slows, markets could begin pricing in less urgency for further rate hikes, but it may also spark concern over underlying demand.

Meanwhile, Friday brings a barometer of consumer sentiment: retail sales. With the UK public increasingly aware of the potential impacts of new tariffs and ongoing trade deal discussions, this data may reveal if consumers are tightening their belts, or spending in spite of the noise.

EUR: Tariff Talk and Economic Telltales in Focus

The eurozone finds itself navigating two fronts this week: diplomatic sparring over trade, and critical data that could reveal the real-world economic impact.

European Trade Commissioner Maroš Šefčovič met with US Commerce Secretary Howard Lutnick last week, pledging to deepen engagement. But cooperation seems strained, especially after the EU reiterated its refusal to accept ‘reciprocal’ tariffs and prepared a €95 billion retaliation list in case negotiations fail.

Investors hoping to read between the lines will have their chance on Thursday, when Flash Manufacturing and Services PMI figures are released. These indicators will provide insight into how European businesses are coping with rising trade tensions and whether momentum is holding up under pressure.

USD: Uncertainty Reigns as Policy Shifts Take Shape

President Trump’s tariff bombshell on Friday that trading partners will soon receive individual letters outlining their new tariff rates has markets bracing for impact. With current rates hovering around 18% and little transparency on what’s coming next, the only constant is uncertainty, and markets historically don’t respond well to that.

On the monetary side, US CPI data showed a softening trend last week, but Fed Board Member Michael Barr’s warnings of potential tariff-induced stagflation paint a more complicated picture. Slowing inflation may give the Fed breathing room, but not if tariffs start choking off growth while keeping prices elevated.

Meanwhile, reports suggest that behind-the-scenes discussions are ongoing between the US and South Korea around foreign exchange policy, adding another layer of intrigue and speculation over the direction of the dollar.

In Summary: The Calm Before the Storm, or the Eye of It?

With markets already skittish, this week could set the tone for how currencies move in the near term. Investors are looking for direction, whether from CPI data, political summits, or the next volley in the global tariff battle. Will clarity emerge, or will further uncertainty push currencies into defensive mode?

Either way, one thing is clear: this isn’t a week to tune out. The signals emerging now could shape central bank decisions, business confidence, and currency performance for months to come.

This week, global currency markets remain sharply focused on geopolitical developments, particularly surrounding ongoing trade negotiations and economic data releases. The US-China trade talks continue to dominate sentiment, influencing USD performance, while key domestic data from the UK and Eurozone could steer their respective currencies depending on the tone and strength of the results. Below, we provide an overview of the key currency movements and potential market drivers in the coming days.

GBP
The British Pound was under pressure despite the Bank of England’s ‘hawkish cut’ last Thursday, where the central bank lowered rates but signaled a cautious stance toward future easing. The move was largely overshadowed by positive sentiment toward the US dollar, following news of a fresh trade agreement between the UK and the US.

This renewed trade alignment has supported the USD, limiting GBP gains. Domestically, traders are eyeing UK employment data due on Tuesday and GDP figures set for release on Thursday. However, market attention continues to gravitate toward broader international dynamics, particularly the developments in the US-China trade relationship, which could influence global risk sentiment and, by extension, Sterling performance.

EUR
In the Eurozone, political developments have taken center stage with the election of Chancellor Friedrich Merz at the second attempt. His ascent to leadership has prompted investors to reassess the strength and unity of the governing coalition, a factor that could potentially lend some support to the euro if political stability is perceived to improve.

Looking forward, speculation is rising about whether the Eurozone could become the next focus of US trade negotiations. However, it remains uncertain if it ranks high on the current US administration’s agenda. Meanwhile, Thursday’s Eurozone GDP release will be closely watched, as investors seek fresh indicators of the bloc’s economic resilience and potential implications for ECB policy.

USD
The US dollar has enjoyed strong support as markets responded positively to significant developments in US-China trade relations. Over the weekend, President Trump acknowledged that tariffs set at 145% would be reduced. Following talks in Geneva, both sides agreed to temporary tariff cuts: the US reducing rates to 30% and China to 10% for a 90-day period, during which a broader trade agreement will be pursued.

These developments are seen as a potential catalyst for continued USD strength, especially if further trade progress is made. On the economic front, US CPI data due on Tuesday could also play a critical role. Should inflation show signs of rising, it may reinforce expectations for steady interest rates, further supporting the greenback’s outlook.

While local data releases from the UK and Eurozone offer some potential for currency movement, the broader narrative remains heavily driven by US-China trade dynamics. With tariff reductions in place and further negotiations ahead, the market’s appetite for risk and optimism toward global trade recovery could determine currency flows in the near term. The USD stands to benefit from any favorable progress, while the GBP and EUR will likely remain reactive to both domestic data and the evolving international landscape.

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.

Global currency markets are grappling with heightened uncertainty amid rising protectionist rhetoric, diverging monetary policy expectations, and slowing economic momentum. Investors are now weighing the risk of US tariffs on global growth, while also pricing in potential rate cuts from major central banks. This week’s data releases and central bank commentary will be pivotal in shaping short-term market direction across major currencies.

GBP – Rate Cut Expectations Mount
Bank of England Governor Andrew Bailey has warned that policymakers must “take seriously” the potential damage to UK economic growth from US tariffs, indicating a more cautious stance from the BoE as external threats mount.
Traders have responded decisively, with Bloomberg analysts now fully pricing in a 25-basis-point rate cut at the BoE’s May 8th meeting. This dovish outlook was reinforced by weaker domestic data — UK PMI figures revealed the sharpest contraction in activity in two years, suggesting that momentum in the UK economy is waning more quickly than expected.
With interest rate cuts seemingly imminent and economic indicators flashing red, pressure on the pound is likely to persist — unless broader US Dollar weakness offsets it.

EUR – Tariffs Seen as Disinflationary, Not Stimulative
European Central Bank President Christine Lagarde stated this week that tariffs are likely to have a disinflationary effect on the Eurozone, rather than stoke inflation — a comment that reinforces the ECB’s cautious policy stance in the face of global uncertainty.

Meanwhile, the IMF downgraded its 2025 growth outlook for the Eurozone to 0.8%, down from the previous forecast of 1.0%. This paints a bleak picture for the region’s recovery, as persistent structural weaknesses and external shocks continue to weigh on growth.

All eyes will now turn to the Eurozone Flash CPI data due on Friday. A softer-than-expected print could increase speculation of a later ECB rate cut, while an upside surprise might offer the euro some near-term support.

USD – Tariff Confusion and Recession Risk Cloud Outlook
Tariff headlines continue to dominate the US policy landscape, with The Wall Street Journal reporting a potential 50% reduction in tariffs on Chinese goods — bringing the rate down to 65%. However, this was quickly walked back by US Treasury Secretary Bessent, who clarified that there was no formal offer to reduce tariffs from President Trump, adding to the market’s sense of confusion over trade policy.

In monetary policy, Federal Reserve Governor Christopher Waller hinted at the possibility of supporting rate cuts if unemployment were to rise significantly, further fueling speculation of a dovish Fed pivot later this year.

Adding to the bearish tone, Goldman Sachs released a stark forecast suggesting a potential 25% to 30% drop in the US Dollar if reciprocal tariffs escalate, a recession unfolds, or more aggressive, goods-specific tariffs are introduced.

The upcoming US employment report on Friday is now crucial. A weak jobs number could deepen recession fears and weigh heavily on the Dollar. Conversely, a strong labor print could temporarily lift the currency, as it would indicate economic resilience despite escalating trade tensions.

Rate Cut Bets vs. Recession Fears – Which Currency Weakens Most?

Markets now face a complex tug-of-war: on one side, aggressive rate cut expectations are weakening the British pound; on the other, growing fears of a tariff-fueled US recession and monetary easing are threatening the Dollar. The euro, meanwhile, sits uncomfortably in the middle — hampered by weak growth, but somewhat shielded by the ECB’s slower pace of policy adjustment.

With key economic data on the horizon, including Eurozone CPI and US payrolls, the next directional move could be determined by which central bank blinks first — or whether tariffs prove to be a more potent threat to global economic stability.

GBP: Eyes on Trade Talks and UK PMI Data

The British Pound held steady last week, with UK interest rates remaining unchanged at 4.5%. GBPUSD has benefited from ongoing US Dollar weakness, though further gains may depend on both domestic data and external developments.

Against the Euro, Sterling found a degree of stability. However, the outlook remains fragile amid concerns over the pace of progress in securing a UK–US trade deal. Continued market volatility could weigh further on GBPEUR in the near term.

Looking ahead, attention turns to Flash UK PMI data due on Wednesday. The figures are expected to offer important clues on the direction of the UK economy and may influence the Pound’s next move.

EUR: Market Watches PMI Data and Lagarde’s Remarks

The Euro continues to find some support amid ongoing uncertainty in the US. EURUSD has edged higher recently, buoyed in part by diminished confidence in the US Dollar.

This week, markets are focused on Eurozone Flash PMI releases, which will be closely scrutinised for signs of economic strength or stagnation across the region. Positive surprises could provide fresh support for the Euro.

ECB President Christine Lagarde is also scheduled to speak on Tuesday. Her remarks will follow last week’s ECB decision to lower the main interest rate to 2.25%, and markets will be looking for further insights into the central bank’s outlook and policy intentions.

USD: Pressure Mounts as Markets React to Political Noise

The US Dollar came under broad selling pressure last week, alongside declines in US Bonds and Equities. Investor sentiment was hit by renewed tensions between President Trump and Federal Reserve Chair Jerome Powell, raising concerns about potential political influence over monetary policy.

In addition to domestic challenges, trade remains a focal point. The Cato Institute recently noted that meaningful trade agreements typically require around 18 months to finalise. Despite the administration’s 90-day timeline, markets remain sceptical that such deals can be achieved without significant compromise. Fears of a return to reciprocal tariffs are resurfacing.

Last week saw notable movement across the major currencies, with macroeconomic data, central bank expectations, and global trade developments driving price action. Here’s a closer look at how the GBP, EUR, and USD performed, and what to watch in the days ahead.

GBP – Pound Steadies After Early Weakness
The British pound started the week on the back foot but managed to stabilize towards the end.
UK GDP data surprised to the upside, rising by 0.5% month-over-month before any potential impact from tariffs—suggesting underlying resilience in the economy.
Looking ahead, traders will be closely watching average earnings and CPI data due this week, which could provide fresh direction for Sterling and potentially influence Bank of England expectations.

EUR – Euro Rallies Strongly
The Euro saw a sharp rebound last week, gaining around 3.5% against major counterparts.
This week, all eyes are on the European Central Bank’s policy decision on Thursday, with markets widely expecting a rate cut.
However, uncertainty remains: will the recent pause in reciprocal tariffs reduce the urgency for the ECB to ease policy further, or will they follow through regardless?

USD – Volatility Challenges Dollar’s Safe Haven Appeal
Last week was turbulent for the US Dollar, as attention swung from trade tariffs to equity markets and bond yields before returning to FX markets on Friday.
With tariffs temporarily paused and a holiday-shortened week in the US, markets may settle somewhat—though that calmness remains to be seen.
Still, persistent volatility across asset classes is raising questions about the Dollar’s reliability as a safe haven in times of stress.

The coming week promises to be pivotal, with key data releases and central bank decisions in focus. As market participants weigh the implications of recent economic surprises and geopolitical developments, currency markets may remain volatile. Traders should stay alert for sharp moves, particularly around the ECB meeting and UK inflation data.

In the past week, currency markets have experienced significant movements, with key developments impacting the British Pound (GBP), Euro (EUR), and US Dollar (USD). As global trade tensions rise, the ongoing economic narratives in both the US and the EU are expected to have a profound effect on these currencies. This report provides a snapshot of the latest factors influencing the forex landscape, from tariff implications to central bank policies, offering insights into the current state and future outlook for each currency.

GBP 
The British Pound saw notable volatility last week, trading sharply around the 1.3000 mark against the US Dollar, as the UK faced a somewhat more favorable tariff scenario, with only 10% tariffs imposed by the US. This allowed for some relative stability in GBPUSD. Analysts at Bloomberg now suggest that there could be as many as four rate cuts from the Federal Reserve this year, driven by the potential for a slowing US economy, which could have a positive impact on the pound. Investors will also be watching UK GDP data, set for release on Friday, closely. The question remains: could the UK economy defy pessimistic expectations and demonstrate growth that might offer support to GBP, or will concerns over economic stagnation prevail?

EUR 
The Eurozone is facing a more significant challenge in the form of 20% tariffs imposed by the US, which the European Union has strongly condemned as ‘unacceptable.’ European Commission President Ursula Von Der Leyen has expressed a preference for negotiation but has also highlighted a ‘strong plan’ to retaliate if necessary. This has raised questions about the potential escalation of trade tensions between the US and the EU. The ongoing trade friction will likely weigh on the EURUSD outlook. The critical question is whether the Euro can continue to strengthen amid these tensions, or if the economic fallout from the tariffs will pressure the currency downward.

USD 
US President Donald Trump has followed through with his proposed tariff strategy, sending a strong message to overseas investors by asserting, “My policies will never change.” Despite this firm stance, both the US equity markets and the USD experienced a notable decline. The market’s response suggests a growing concern over the broader implications of Trump’s trade policies. This week, US inflation data will be released on Thursday, and all eyes will be on whether it shows further signs of easing. A soft inflation reading could exacerbate concerns about the US economy and contribute to additional weakness in the US Dollar, further complicating the Federal Reserve’s outlook on future rate decisions.

The outlook for global currencies remains uncertain as trade tensions continue to shape market sentiment. The British Pound, Euro, and US Dollar are all navigating critical challenges, with domestic economic factors and international trade policies playing a pivotal role in determining future movements. As the market braces for key data releases, including UK GDP and US inflation figures, the next few days could prove crucial in defining the trajectory of these currencies. Investors will be closely monitoring developments, particularly around US monetary policy and the evolving trade relationship between the US, EU, and UK.