Market Recap:
Tariffs continue to dominate sentiment but a quieter week in US-EU-China trade relations boosted the dollar, while key economic indicators from the US and UK could drive exchange rate movements in the next few days.
The dollar rallied against the euro and pound at the end of last week, after a few days of relative calm on the tariff front. The greenback was boosted by better-than-expected US jobless figures and more optimism over the US/China trade standoff, with President Trump announcing that talks between the world’s two largest economies would resume next week.
The dollar strengthened notably against the euro, although the euro has still gained over 5.5% against its US counterpart over the past year. Sterling was protected to some degree by strong UK economic data, especially a 3.5% year-on-year increase in house prices. The dollar edged upwards against the pound on Friday but the pound has still gained over 6% against the greenback in the last 12 months. Sterling continues to perform strongly against the euro, gaining over 1% in the last four weeks.
Nearing the end of interest rate easing? As expected, the European Central Bank (ECB) reduced its main interest rate by 25 basis points last week, but also hinted that the rate cutting cycle may be nearing its end. Investors also reduced their expectations of further rate cuts in the UK this year. Interest rates drive exchange rate fluctuations by making currencies more or less attractive to investors.
Coming Up:
Markets will keep a keen eye on the rift between President Trump and Elon Musk in the US, as well as a raft of US inflation data to be published on Wednesday. Inflation data influences interest rate decisions which in turn drive exchange rate movements.
The UK will release key unemployment and monthly GDP data on Tuesday and Thursday respectively. That, and the Chancellor’s Spending Review on Wednesday – which will include details on new defence investment – could drive money market fluctuation.
