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Sterling looks to start anew, while for the euro, another rate cut threatens its good progress.
A mixed week for the pound saw it give up early advances against the US dollar and the euro to finish just in the red across the week. In what was another resilient showing, the euro held its own over the US dollar, which remains subject to a dizzying barrage of economic and political news.
The key events of this week are chiefly centred around the euro. Another rate cut from the European Central Bank (ECB) could be on the schedule, but that decision will only come after the eurozone reports it latest inflation numbers and following Friday’s news that headline inflation in Germany unexpectedly climbed to 2.1% in May.
According to media reports, UK chancellor Rachel Reeves is set to rewrite some Treasury spending rules to unlock more investment outside of the South East of England. The decision is set to be announced at this month’s spending review and could translate to billions of pounds in additional funding.
The US trade deficit narrowed sharply in April as the impact of tariffs hit trading dynamics. Imports collapsed by almost 20% month-on-month, while exports climbed by more than 3%. April’s trade deficit of $87.6bn is the smallest monthly trading gap since December 2023. Coincidentally, President Donald Trump ended last week by accusing China of violating the tentative tariff truce.
America’s Core PCE price index, the inflation metric favoured by the Federal reserve, came in at 0.1% in April. That was below the forecasted level of 0.2% and might just amp up the pressure on Fed Chair Jerome Powell, already the subject of a pointed White House meeting last week.
Taking a look at global markets, India’s economy grew at an annualised 7.4% in the first quarter of the year, smashing estimates of 6.6% growth. Exports soared and imports slumped over this period, although growth remains well below the staggering highs of close to 10% set in 2023.
Elon Musk bade farewell to the Oval Office and his DOGE colleagues on Friday. The Tesla CEO is stepping back from the helm of the government efficiency taskforce after a fierce political backlash to his strategy and snowballing shareholder alarm at the stock’s falling value.
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GBP: A mighty May
Despite last week’s more mixed performance, the pound put in a solid performance last month. Across May, GBP/EUR and GBP/USD each added the best part of one per cent, bolstered by unexpectedly strong economic numbers and the migration away from the dollar.
GBP/USD: the past year
EUR: A strong finish
The euro battled through a tough start to the week to finish strong on Thursday and Friday. This week presents larger danger due to the ECB’s starring role, but the euro’s rosy fundamentals ensure it enters this week in a strong position.
GBP/EUR: the past year
USD: Exceptional no longer
On Friday, analysts at Rabobank argued the US dollar’s weakness this year has reflected the “sell America” trend within the investor community. The dollar’s fall could have further to run, they argued, particularly if government policy continued to undermine economic growth and the trust of allies.
EUR/USD: the past year
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