Market Recap:
Caution returns to money markets after China/US tariff pause: The dollar was boosted by the easing of trade war tensions between the US and China, but investors remain cautious as Trump announces new tariff letters
Dollar enjoys modest rally but it may not last: The euro and the pound both slipped a little against the dollar last week, as easing tensions in the trade standoff between the US and China boosted the greenback. The pound dipped to a one month low, as did the euro, though the euro bounced back as initial optimism over the deal gave way to a more cautious ‘wait and see’ attitude.
Despite the dollar’s rally, it has lost around 8.5% of value against the euro so far in 2025 and around 7.8% against the pound, after President Trump’s stop start tariff policy injected uncertainty into global markets. It could slide further this week after credit rating agency Moody’s downgraded US government debt to Aa1 from gold standard Aaa.
UK growth beats expectations: UK gross domestic product (GDP) growth was estimated at 0.7% in the first quarter of 2025, beating expectations. This compares to 0.3% in the eurozone and a 0.3% decline in the US. A rising GDP often leads to a strengthening currency, while the opposite is also true.
Coming Up:
Tariff worries may return: Focus next week may return to tariffs, after Trump said the US would send letters to a number of trading partners unilaterally imposing new tariff rates. The President admitted it was “not possible to meet the number of people that want to see us”. It’s not yet known whether these rates will differ from those already announced. Higher-than-expected tariffs could see volatility return to money markets as investors withdraw from hard hit economies.
Investors expect further rate cuts: Investors currently expect both the Bank of England and the European Central Bank to cut interest rates again in June from current levels of 4.25% and 2.4% respectively. Lower interest rates tend to decrease a currency’s value on foreign exchange markets as investors look for better returns elsewhere.
