Exchange rates steadied last week but a China/US tariff agreement and key economic indicators could drive volatility in the next few days.
Market Recap:
Investors look to China/US de-escalation: The US and China agreed a significant de-escalation in their trade war over the weekend, with a 90-day pause in the swinging tariffs announced last month. A large cut in import rates between the nations is likely to have significant repercussions for foreign exchange rates as confidence returns to markets.
Dollar rallies: Both the pound and euro ended up against the dollar on Friday, with the euro settling at just under the three-year high achieved against the greenback in April. But the dollar rallied after news of the US/China tariff deal, with the pound and euro both beginning to slide against the greenback on Monday morning.
Interest rates continue as expected: In widely expected moves, the US Federal Reserve kept interest rates steady last week, while the Bank of England reduced rates by a quarter of a percentage point. The eurozone interest rate is currently 2.40%, but money markets now think it could fall to as little as 1.6% by the end of the year. Lower interest rates tend to decrease a currency’s value on foreign exchange markets.
Market Movements:
Uncertainty remains the watchword: All eyes will be on the fluid relationship between Washington and Beijung again this week, as markets hope for further progress on tariff reduction.
The US will also release key data on inflation and retail sales, both of which could impact the dollar’s standing on money markets. The UK will publish figures on Q1 GDP growth, while the Euro area will release data on foreign trade.
Markets could turn volatile if key data indicates significant global economic harm from President Trump’s first months in power, impacting money markets.
