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The US dollar picked up some bullish momentum as better news arrived from the Oval Office.
Sterling and the euro both sought to stem losses from a US dollar fightback on Wednesday, which came in reaction to two significant concessions from President Donald Trump. First, Trump walked back comments about Federal Reserve chair Jerome Powell, before opening the door to a trade deal with China. The US dollar gained roughly half a cent against the pound and euro, which battled out a score draw.
The pound was not helped by some discouraging news for chancellor Rachel Reeves. UK government borrowing smashed past expectations by almost £15bn to reach £151.9bn in the past financial year, which ended in March. Some economists predicted tax rises might have to be on the agenda at the autumn statement.
Both the UK and Germany reported key PMI (purchasing manager’s index) data yesterday. Services and manufacturing output fell in the British economy in April, with private sector activity declining after 17 consecutive months of expansion. New orders and employment fell and expectations of future activity weakened amid an uncertain economic outlook.
The numbers were also trending downward for Germany, although its manufacturing miss was modest — 48 compared to forecasts of 48.1. Tariff uncertainty continued to put the kibosh on growth, and despite easing input costs from energy and commodities, analysts warned the figures might have been worse were it not for buyers “frontloading” orders ahead of tariffs.
Donald Trump retreated from his extreme position on Chinese tariffs, sparking a rally in battered stock markets. The US president now plans to be “very nice” to the world’s second largest economy and promised that the cripplingly high tariffs currently in place would be dropped if a trade deal were agreed.
In the geopolitical theatre, the United States repeated its threat to pull out of peace negotiations for Ukraine if no progress was made. A frantic day of news saw a bi-lateral meeting in London cancelled after the withdrawal of US officials, before Ukrainian representatives indicated they were willing to negotiate but not to surrender.
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GBP: Stable despite pressure
Even as the public finances creak, the pound at least enjoyed a broadly stable day on Wednesday. Minor losses to the US dollar were mainly the result of external factors, but the pound still has a fight on to convince currency markets it can keep up with the eurozone’s revival.
GBP/USD: the past year
EUR: Focus on business
After the release of manufacturing data, focus will now shift to the German Ifo business indicator to dictate the euro’s next move. Tariffs are likely to feature prominently in the survey, with many businesses uncertain of where to move next in light of all the uncertainty.
GBP/EUR: the past year
USD: Mr Too Late
Donald Trump called the Federal Reserve’s Jerome Powell “Mr Too Late”, but it was Trump’s softening stance on Powell and China that came too late for the US dollar. Despite the de-escalation, the US dollar could only record small daily gains over its rivals and remains about 3% and 5% down against the pound and euro respectively since the start of April.
EUR/USD: the past year
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