12 May 2025

GBP

Last week the Bank of England cut interest rates by 25 basis points, aligning with expectations. However, the split vote among MPC members (ranging from no cut to a 50bp cut) reflects recent economic uncertainty and supports the BoE’s gradualist approach to further easing.

Despite the cut to headline rates, the BoE struck a hawkish tone, signalling that policy will remain restrictive to manage inflation risks. This has helped the pound recover its footing against the euro.

The limited UK-US trade deal has also supported GBP, as it reduces uncertainty around transatlantic trade. While the UK didn’t secure major concessions, with the new trade framework agreed by the two countries maintaining a flat 10% tariff, the ongoing dialogue has been welcomed by investors.

There have been relatively lower levels of market volatility since and the pound continues to make further gains against the euro, potentially until the EU secures a deal of its own.

Key data to watch this week includes UK GDP on Thursday and labour market figures on Tuesday. The latest growth data is expected to show 0% growth in March, down from 0.5% in February, and the unemployment rate is forecast to increase 0.1% from last month to 4.5%.

EUR

The euro remains under pressure versus both the dollar and the pound amid expectations of further ECB rate cuts, possibly as early as June. Despite ECB officials’ optimism that inflation will return to the 2% target by year-end, concerns over the economic outlook persist.

The Eurogroup meeting this week and the upcoming EU GDP release (expected at 0.4%) will be in focus this week. Meanwhile, the European Commission has launched a public consultation on potential countermeasures to US tariffs, though the priority remains securing a trade agreement.

USD

The Federal Reserve held interest rates steady at 4.50%, maintaining a hawkish tone despite growing concerns over economic headwinds. Fed Chair Jerome Powell emphasised that while the labour market remains strong and economic activity is expanding, inflation remains sticky, and risks of both higher inflation and unemployment have increased.

Markets were buoyed by breaking news of a US-China trade deal. In a joint statement a significant reduction in tariffs was announced with the US confirming that they would slash duties on Chinese imports to 30% (10% baseline plus 20% rate imposed to curb fentanyl inflows) and a reduction of 115% on US imports in to China from 125% to just 10%. This has helped ease fears of a recession and global trade dispute, bringing more stability into global markets. This is not a permanent solution to recent tensions here but rather a short-term reprieve allowing some cooling of concerns about the push into a global slowdown. 

Looking ahead, Fed officials' speeches throughout the week, including Powell's speech on Thursday, today's US Monthly Treasury Statement, and the latest PPI inflation data on Thursday, are expected to influence USD sentiment this week.

Trump's involvement in both the Russia-Ukraine conflict and trade negotiations also continues to influence global sentiment. President Zelensky is reportedly open to direct talks with Putin in Istanbul this week. While this raises hopes for de-escalation, uncertainty remains high, with Western leaders warning of massive sanctions if Russia fails to agree to a ceasefire.

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.