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America's economy shrank last quarter as the eurozone posted positive numbers.
The US economy contracted by an annualised rate of 0.3% in the first quarter of 2025. This marked the first quarter-on-quarter GDP slowdown since the start of 2022 and represented a sharp fall from the 2.4% growth recorded the previous quarter. Despite this, President Donald Trump defended his administration’s tactics, arguing that these unexpectedly weak figures had “nothing to do with tariffs”.
A more positive set of numbers from the eurozone helped the euro emerge from a tricky spell with credit. GBP/EUR shed around a quarter of a cent and EUR/USD was only slightly weaker amid Wednesday’s choppy trading.
The eurozone’s economic output increased by an annualised 1.2% in the first quarter of the year, clearing the 1% figure the majority of economists had predicted. In a noteworthy twist, it did so thanks to overperformance of France and Italy as opposed to Germany, whose GDP figures came in a shade below expectations.
Italy, France and Germany also reported inflation figures, all of which came in slightly cooler than expected. Wednesday’s conveyor belt of heavy-hitting news didn’t appear to knock the euro off its stride – a good outcome considering the risk that these releases could derail recent progress.
Overnight, the Bank of Japan voted to hold interest rates at 0.5% amid “extreme uncertainty” around the impact of tariffs. The Japanese yen fell by over 1% against the US dollar as policymakers slashed their economic growth projections for 2025 and 2026.
Ukraine has signed an “economic partnership” agreement with the United States widely seen as a precursor to a ceasefire in the region. The mineral rights deal will see Ukraine begin to repay some $175bn in American military aid and incentivises ongoing investment in Ukraine’s defence.
After trade frustration with the United States this week, exporters and importers will be cheered at least by news that the UK is moving closer to a trade deal with India. The two governments are entering the final stages of negotiations, with only a handful of issues left to resolve, insiders said.
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GBP: Underperforming
With its rivals reporting mixed data, we might have expected the pound to mount a stronger showing yesterday. Instead, sterling fell against both the euro and the US dollar. With a Bank of England meeting next week, the road from here is likely to be bumpy.
GBP/USD: the past year
EUR: Bolstered by GDP and inflation
The euro’s standing in a key week has been bolstered the solid performance of member states in a glut of inflation and GDP numbers. With Germany’s political parties close to agreeing a coalition, this seems to be a rare case of economics and politics pulling in the same direction.
GBP/EUR: the past year
USD: A post-pandemic first
For the first time since the early months of 2020, the latest Core PCE price index did not climb month-on-month. Given this is the Federal Reserve’s favoured measure of inflation, as well as worrying growth figures, this could move the dial in favour of a cut at next week’s Fed meeting. The US dollar still recorded a positive day despite developments that would usually suggest weakness.
EUR/USD: the past year
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