06 May 2025

GBP

The main event for this week will be on Thursday with the Bank of England (BoE) interest rate meeting, which is widely anticipated to see a 25bp cut to 4.25%, marking the second rate cut of 2025.

Many economists believe the central bank will transition to a more dovish stance in the accompanying commentary, following US President Donald Trump's tariffs and general uncertainty about his future plans, which could continue to raise concerns about growth and inflation.

Further insights into the decision are expected when the central bank's Governor, Andrew Bailey, holds another speech on Friday to discuss monetary policy plans for the rest of the year. Currently, there are 3.8 further rate cuts priced in for 2025, with expectations of a total of five rate cuts for the year.

Market expectations around the Bank of England's interest rate decision seem to have caused GBP/EUR to flatline after some gentle strengthening of sterling over the last few weeks leading up to a 3-week high last week. GBP/USD has also plateaued, with present levels hovering around the 3-year high we've been experiencing recently.

In other news, film tariffs are expected to be part of trade negotiations between the UK and the US after President Trump announced a potential 100% tariff against all films made outside of the US. Trump announced these plans early this week to help the US movie industry, which he said was dying "a very fast death".

Responding to the development, Starmer's Labour government confirmed negotiations with Washington were ongoing, and it was taking a "calm and steady approach" to talks in a bid to "ease pressure on UK businesses".

EUR

Last week, the Eurozone manufacturing Purchasing Managers Index was released from France, Italy, Spain and Germany. The overall Eurozone data released slightly above estimate at 49.0, rising at the fastest pace since March 2022, providing further evidence of recovery in the bloc's industrial economy - albeit still below the key 50 threshold that indicates expansion.

Wednesday sees the only significant market event for the single currency this week.  EU retail sales figures are forecast to drop from 2.3% to 1.6%.

Whilst the UK and US have interest rate decisions this week, the European Central Bank's next meeting is not until Thursday 5th June.  Despite this, the euro has been a significant benefactor of the tariff announcements from the US. As such, EUR/USD has risen over 10% from the lows seen in the last three months, up to levels not seen since the end of 2021.

USD

Friday saw the release of Non-Farm Payrolls come in above estimates at 177K compared to a predicted 138K at the end of last week. The unemployment rate also held steady at 4.2%, and average earnings increased by 0.2%, although it came to 0.1% below expectations. There was further good news for the USD on Monday as the final ISM Services Purchasing Managers Index data came in higher than expected at 51.6.

Despite the strong jobs report, business and consumer surveys suggest that the uncertainty around tariffs and trade policy is hurting consumer sentiment. There is also an expectation that cooling economic activity will translate into a weaker jobs market over the summer months.

Separate from the market data, the key event of this week, however, will be the interest rate decision on Wednesday, with the Federal Reserve expected to keep rates unchanged at 4.5%. This would be very disappointing for Trump, who has been increasingly critical of the Fed's chair, Jerome Powell, recently for not cutting rates quickly enough. The hawkish tone may ease off, however, if the US economy continues to be impacted by the ongoing tariff uncertainty and subsequent trade war with China.

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.