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Global markets are hoping a breakthrough between the US and UK is a springboard for other agreements.
A productive week for sterling saw GBP/EUR reach its highest level since early April. The pound meanwhile exchanged blows with the US dollar and finished only marginally higher across the week.
Despite a limited deal between the UK and the United States, trade is once again at the top of the agenda as we open Monday. That’s the result of a significant meeting between American and Chinese officials over the weekend, as well as the hope that the first tariff deal would spark a glut of similar frameworks with large economies.
Make no mistake, though: the real big fish from the perspective of currency and stock markets is China. The US dollar endured a mixed Friday as markets weighed the promise of a meeting with US President Donald Trump’s suggestion that tariffs may not fall below 80%, even with an agreement in place.
Progress seems to have been made over the weekend. Stock markets and brent crude opened Monday up as officials highlighted “productive” discussions. Both sides will hold a press conference this morning where we should see more detail but a full plan is unlikely at this stage.
After 2 April, we cautioned that it may take some time for the real impact of those policies to feed through into economic data. Well, more than one month on, this week gives us our first real chance to analyse the impact.
The UK has two significant data points, the first coming on Tuesday (13 May) in the form of unemployment data and the second on Thursday (15 May) with the quarterly GDP read. Economic growth is expected to have slowed in the first quarter of the year, perhaps even as low as 1% on an annualised basis.
US PPI and retail sales for April should shed some light on the impact of tariffs, although tomorrow’s inflation report is likely to be the more significant event for American markets.
The German ZEW economic sentiment survey is the highlight of another relatively low-key week for the eurozone.
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GBP: A muddled picture
Last Thursday’s interest rate cut by the Bank of England arguably did not provide the certainty the pound was looking for. With the vote split, markets interpreted the decision as a hawkish, cautious move. However, analysis by Deutsche Bank suggested policymakers had lowered their neutral rate expectations, suggested more cuts aren’t far away.
GBP/USD: the past year
EUR: Finding resistance
The euro spent much of last week on the back foot. That was especially true against the US dollar, although the euro generated some pushback across Friday. There isn’t much data to fall back on this week, presenting fresh challenges for the single currency.
GBP/EUR: the past year
USD: Hoping for a tariff reprieve
US dollar investors are on tenterhooks as the real negotiating begins between America and its trading partners. So far, just one country (and not even a high-volume partner at that) has agreed new terms. The US dollar will once again be heavily swayed by tariffs this week.
EUR/USD: the past year
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