01 September 2025

GBP

Sterling continues to trade in a cloud of uncertainty as the UK’s economic picture remains mixed. Inflation accelerated again in July, rising to 3.8%, slightly above expectations of 3.7%, and marking the highest level since January 2024.

The increase was primarily driven by rising food and airfare costs, adding pressure to the Bank of England’s already complex policy outlook. With inflation still climbing, investor appetite for the pound may weaken as rate expectations become more uncertain.

This morning (Monday), the Nationwide Building Society House Price Index showed a slight dip in prices (-0.1%) in August compared to July, and the latest Manufacturing PMIs reflected another contraction in activity coming in slightly below forecast at 47.0.

Later this week, UK retail sales data will offer further insight into consumer behaviour. With household bills and food costs rising, this data will help gauge how much pressure consumers are feeling and whether spending is starting to slow. Forecasts expect retail sales to grow by less than last month, falling from 0.9% to 0.4%, but remain in growth territory.

Overall, sterling remains vulnerable to inflation surprises and uncertainty surrounding the Autumn Budget. Strong retail data could offer short-term support, but the broader picture remains fragile.

EUR

The eurozone enters a data-heavy week, with a series of PMI releases, inflation data, and speeches from key policymakers likely to influence market direction.

Monday kicked off with manufacturing PMIs from Spain, Italy, France, and Germany, followed by the eurozone composite. Broadly, these came in better than expected, with only Germany’s data coming in 0.1% below forecasts. Spain, Italy and France’s manufacturing industries all printed above the key 50 threshold, indicating a return to growth.

Tuesday brings flash CPI estimates for the EU, with both headline and core inflation figures in focus. Markets will be watching closely for signs of price pressures that could influence the European Central Bank’s policy expectations. Also on the docket are Spanish unemployment and French budget balance figures.

Midweek, attention turns to the services sector, with final PMIs due from Spain, France, Italy and Germany, alongside speeches from German Bundesbank President Nagel and ECB President Christine Lagarde. Any hawkish or dovish tone from Lagarde could quickly shift sentiment.

Later in the week, retail sales (Thursday) and revised GDP (Friday) will offer further insight into consumer strength and economic momentum.

Strong inflation and PMI data could support the currency, while weaker-than-expected data may reinforce caution. Differences in how each eurozone country is performing could make it harder for the euro to rise unless confidence improves across the region.

USD

The US dollar remains heavily influenced by central bank policy expectations, though political developments continue to add noise.

At the recent Jackson Hole conference, Federal Reserve Chair Jerome Powell acknowledged the challenge of balancing persistent inflation with signs of emerging weakness in the labour market. His comments left markets uncertain about the Fed’s next move, contributing to cautious trading sentiment.

This week’s economic calendar is packed with releases that could shape expectations. Key data includes ISM Manufacturing PMI, JOLTS Job Openings, and ADP Employment Change, but the spotlight remains on Friday’s Non-Farm Payrolls, Unemployment Rate, and Average Hourly Earnings - all critical for gauging labour market resilience and inflationary pressure.

Meanwhile, legal and geopolitical tensions surrounding President Trump’s tariff policy continue to stir market unease. The administration’s sweeping global tariffs, ranging from 11% to over 100%, have faced legal challenges in US courts, with critics arguing the president overstepped his authority.

Despite this, Trump’s advisers remain steadfast, stating ‘tariffs are not going away’ and framing the measures as essential for protecting American industry.

The uncertainty around trade negotiations, particularly with China, and the potential for retaliatory action continue to weigh on investor sentiment and add complexity to the dollar’s outlook.

Strong labour market data could offer support for the dollar this week, but trade tensions and political interference may limit any benefits and reinforce expectations for a more cautious Fed.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.