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The euro has all the momentum heading into the long Easter weekend.
The euro’s hot streak continued on Wednesday and saw it make more gains at the expense of the pound and US dollar. By the market close, GBP/EUR had fallen by half a cent and EUR/USD approached a three-year high.
Falling UK inflation hampered the pound and set the stage for the Bank of England’s next meeting. We’ll have to wait until 8 May for that, but given signs of weakness in the labour market, there is growing conviction that Andrew Bailey and co will have no choice but to loosen the constraints on the economy, if only slowly.
Take any numbers we’ll see in coming weeks with a pinch of salt, as the vast majority of releases won’t take the impact of tariffs into account. So, while March’s headline inflation number fell to 2.6% in the UK, April’s figures will likely be far higher as tariffs, higher household bills and employer national insurance contributions take effect.
To help pay for those price rises in an equitable way, energy regulator Ofgem has suggested electricity rates could be priced based on income. Household energy arrears hit a record high last year and Ofgem is looking into a number of measures to ease the burden on consumers.
Donald Trump’s trade tariffs will create tension between the Federal Reserve’s dual mandates of controlling inflation and maintaining stable employment, according to Fed chair Jerome Powell. In a wide-ranging series of remarks at the Economic Club of Chicago, Powell stressed the importance of price stability, without which the Fed “cannot achieve long periods of strong labour market conditions”.
The Bank of Canada decided to leave interest rates unchanged at 2.75% at its meeting yesterday. That is the first time it has opted against a cut in seven meetings and policymakers were quick to highlight the tariff variable to justify their move. The decision to hold was widely expected and contributed to only small daily gains for CAD.
The European Central Bank will provide the last key moment today before the bank holiday weekend. Markets are expecting another quarter-point (0.25%) cut to interest rates, although questions around the inflationary impact of tariffs will be hard to escape.
With the US dollar stumbling, gold surged to another record high on Wednesday as investors continued to seek refuge in safe-haven assets amid the ongoing trade war. The price of one troy ounce passed $3,300 and major stock markets sank into the red across the world.
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GBP: Bank leapfrogs inflation
After Wednesday’s news, we won’t see any more inflation data coming out of the UK until after the Bank of England’s next interest rate decision. The Bank is widely expected to announce another cut, made possible by the fact that April’s inflation data, which will include the jolt of tariffs and higher bills, won’t be published until the week after.
GBP/USD: the past year
EUR: Bunny hopping
Ahead of Easter, it’s worth taking stock of just how much ground the euro has regained since the start of the year. The euro is around five cents stronger against the pound compared to 1 January and has picked up a whopping 10 cents over the US dollar. Most of those moves have come in the past month, highlighting just how volatile currency markets have become.
GBP/EUR: the past year
USD: Retail therapy
Unexpectedly strong retail sales helped the US dollar regain a little ground to its European rivals on Wednesday afternoon. However, having sunk to a more than three-year low against the euro this week, markets continue to believe that the long-term shifts made by the White House are more significant than any recent data.
EUR/USD: the past year
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