27 May 2025

GBP

The Treasury is currently preparing for a Spending Review on 11th June, which will set the budgets for many governmental departments until 2029. This is also the deadline for the next UK general election.  

As a result of the poor local election results at the beginning of May, we could see a change in some of the more unpopular Labour policy decisions, such as winter fuel payments and the two-child benefit cap. This could put additional pressure on other areas of the budget.  

Despite ongoing concerns over the UK’s fiscal outlook, GBP has recently performed well against most major counterparts. Yet, it’s strength – particularly against the USD, with GBP/USD sitting at the highest level since February 2022 – may prove unsustainable given the mixed signals from UK economic data. 

Moreover, GBP appears to play a secondary role in the GBP/USD currency pair, with US-driven factors largely dictating the exchange rate’s direction. 

EUR

Europe seems to be benefiting from international investors shying away from the US.  European stock markets have been trending higher, with EUR/USD climbing as much as 12.4% at its April peak, before pulling back slightly.  

However, President Trump has fuelled further speculation regarding trade tariffs for the EU, which could potentially damage growth and stoke inflation in Europe. The strength of the Euro will likely change based on the story that is developing over the coming weeks. 

Later this week, Germany release CPI data on Friday, which is expected to fall from 0.4% to 0.1% month-on-month and is a critical indicator of inflation across Europe as the bloc's largest economy. 

USD

The US dollar largely drives the FX markets, which is truer now than ever. The trade tariff policies, the forecasted state of the US economy, and the flow of money out of the US dollar as a 'safe-haven' asset are currently driving the USD lower, with GBP/USD and EUR/USD continuing to benefit. 

This week, key releases could impact that narrative, with the meeting minutes from the recent FOMC meeting released on Wednesday, US GDP data on Thursday, and Core PCE Price Index data on Friday. 

Federal Reserve Chair Jerome Powell is facing mounting pressure from President Donald Trump to lower interest rates. Despite this, the Fed opted to hold rates steady at its most recent meeting on 7th May.  

Policymakers remain concerned that the administration's trade policies could hinder economic growth. At the same time, global fears of a price shock are fuelling anxiety about persistent inflation. The Fed's central challenge remains to balance supporting growth and containing inflation. In Wednesday's forthcoming update, more insight into how the central bank plans to navigate this delicate path is expected. 

Two key US economic data releases this week will shed further light on the Federal Reserve's policy dilemma. On Thursday, the first-quarter GDP report will provide a snapshot of economic activity from January through March - crucially capturing the first two and a half months of the Trump administration.  

Then, on Friday, the Core PCE Price Index, the Fed's preferred measure of inflation, will be released. This index focuses on the prices of goods and services consumed by individuals, offering a clearer view of underlying inflation trends. 

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.