The Fed looks likely to finally start easing in September, while Europe and the UK hold steady
Market Recap:
Tariffs led the news again last week after President Trump imposed a 50% levy on India as punishment for Delhi buying Russian oil. In another interesting development, the US appeals court ruled that most tariffs issued by President Trump are illegal. The ruling doesn’t come into effect until 14 October, and the US Supreme Court may overturn it, but uncertainty could drive money market fluctuations until the issue is settled.
Elsewhere, the euro continues its strong showing against both the dollar and the pound, strengthening by around 11% and 2.7% respectively this year. Inflation fears in the US and the promise of a major EU economic stimulus are supporting the euro against its rivals. There’s no sign at the moment of the rally coming to an end, despite the imposition of new US import duties.
Central banks stick to their guns
Barring shocks, markets expect no further monetary easing by the European Central Bank (ECB) in 2025, and the chances of another rate cut by the Bank of England (BoE) this year have reduced significantly after UK inflation edged upwards to 3.8% in the year to July.
By contrast, the Federal Reserve (Fed) is under considerable pressure to cut rates in September from the current 4.25%-4.50% range. It has hinted that it will, but investors will be looking for stronger clues. Interest rate changes tend to move money markets significantly.
Coming Up:
Some crucial data may move exchange rates this week. In Europe, inflation rate figures (Tuesday) and retail sales (Thursday) will give clues to the health of the underlying economy and investors will be watching closely. In the US, balance of trade (Thursday) and labour market data (Friday) will point to the impact of President Trump’s tariff policy. The UK’s monthly retail sales figures are due on Friday.
