28 July 2025

GBP

The pound has started the week on a firmer footing, buoyed by improving market confidence following the US-EU trade deal. Investors seem to be showing more appetite for risk, which has supported GBP against both the dollar and the euro.

In the political sphere, Prime Minister Keir Starmer is expected to meet with President Trump this week to discuss UK-US trade relations, with a particular focus on UK steel exports. The 50% global tariff on steel and aluminium remains in place, and Starmer is reportedly pushing for a sector-specific exemption.

On the data front, last week’s UK retail sales rose by 0.9%, a rebound from the previous month’s -2.7% drop, but still short of the 1.2% forecast. This underperformance adds to concerns that the UK economy may be losing momentum.

This week’s UK calendar is relatively light, with no significant data releases scheduled. As a result, sterling may take its cues from external drivers, including global risk appetite, US data, and trade headlines.

EUR

The EU has narrowly avoided a major escalation in trade tensions with the US, thanks to Sunday’s agreement that limits tariffs to 15% and exempts key sectors. While this outcome is far from ideal, it represents a clear improvement over the previously threatened 30% blanket tariffs. The deal provides short-term relief for exporters and removes a significant source of uncertainty for the eurozone economy.

Last week, the European Central Bank held rates steady, with a notably dovish tone in the accompanying press conference. Markets now believe the ECB has likely concluded its rate adjustment cycle for 2025, as policymakers shift focus to supporting growth amid global headwinds.

This week, the spotlight turns to Germany and Spain, with a full slate of data including German retail sales, which are expected to show recovery from last month, and a raft of CPI inflation releases and Eurozone-wide GDP figures, which forecasts anticipate to hover between -0.1% and 0.1% across the board.

USD

The week opens with a major geopolitical development: the US and EU have reached a long-awaited trade agreement. Announced jointly by President Trump and European Commission President Ursula von der Leyen on Sunday evening, the deal imposes a 15% tariff on most EU goods entering the US, significantly lower than the 30% rate that was set to take effect this Friday. Key sectors, including aircraft components, certain chemicals, and specific agricultural products, have been fully exempted, providing targeted relief to EU exporters.

President Trump has framed the deal as a win for US industry, citing hundreds of billions of dollars in promised EU investment and energy purchases. For the EU, von der Leyen described the agreement as a source of “stability” and “certainty” – a sentiment likely to resonate with markets.

Meanwhile, attention turns to the FOMC meeting on Wednesday, where the Federal Reserve is widely expected to hold rates steady at 4.5%. The Fed’s Chair, Jerome Powell, is facing intensifying pressure from President Trump to cut rates. However, with inflation still above target and the economy cooling, the central bank is expected to maintain a cautious tone.

Elsewhere, US-China trade relations remain in focus. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are meeting in Stockholm today, with reports suggesting a three-month extension to the current tariff truce is on the table. The Financial Times also reports that the US has paused specific export controls to facilitate smoother negotiations.

The week is also rich in economic data releases, including the Q2 GDP, released on Wednesday, which could be a key gauge of economic momentum. Additionally, the Fed’s preferred measure of inflation, PCE, is released on Thursday, and Nonfarm Payrolls on Friday, which is expected to show continued labour market resilience.

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.