30 June 2025

GBP

Last week, the pound experienced volatility driven by a positive trajectory against many of the G10 currencies and the market outlook for this week is expected to be similar.  

GBP/USD has been trading at just shy of a 4-year high, with levels not seen since October 2021. However, this movement appears to be driven more by USD's weakness than GBP strength. This view was reinforced this morning when the pound's levels remained steady despite the UK's revised Q1 GDP figures remaining unchanged at 0.7%.

The Bank of England's ongoing hawkish stance on interest rates is likely to remain a key factor. Last week, the central bank's governor, Andrew Bailey, stated that: "Monetary policy needs to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term has dissipated further."

This week, aside from a couple of speeches from members of the Bank of England's Monetary Policy Committee, there are no other significant UK data releases expected to impact the currency market. Most of the potential currency volatility is likely to be driven from elsewhere.

EUR

Europe will also experience a relatively quiet economic data week. This morning [Monday] German retail sales figures were released, dropping from 2.9% to 1.6%. Later today, Germany will release its CPI figures, with a modest month-on-month increase from 0.1% to 0.2% anticipated. European Central Bank President Christine Lagarde is also scheduled to speak later in the day, which could offer further insight into the central bank's outlook.

On Tuesday morning, the eurozone will publish its CPI data, with year-on-year inflation expected to rise from 1.9% to 2.0%. While this would mark an uptick, it also aligns with the ECB's long-term inflation target. As such, it may give the central bank the flexibility to proceed with rate cuts if deemed appropriate.

Most analysts seem to agree that the ECB is nearing the end of its cutting cycle; however, markets remain undecided about whether we'll see one or two more cuts this year. Currently, forecasts expect a pause at July's meeting and a cut in September's.

USD

This week, US markets will operate on a shortened four-day schedule due to the Independence Day holiday on Friday 4th July. This lighter calendar could offer some temporary support to the US dollar, which has been under pressure amid a continued shift away from safe-haven assets, helped by the ongoing Israel-Iran ceasefire.

Economic data has done little to bolster sentiment. Last week, revised Q1 GDP figures came in weaker than expected at -0.5%, down from the previous estimate of -0.2%, highlighting growing concerns about the health of the US economy. While JPMorgan has lowered its recession probability for the US from 60% to 40%, the risk of a significant slowdown remains firmly on the radar.

Political developments have added to the uncertainty. President Trump is reportedly seeking to end Federal Reserve Chair Jerome Powell's term ahead of its scheduled conclusion in May 2026, following months of public criticism.

Market speculation suggests that President Trump may be looking to install a Fed leader more aligned with his economic agenda, namely lower inflation and stronger growth. Potential successors include former Federal Reserve Governor Kevin Warsh and current Treasury Secretary Janet Yellen.

Tensions are likely to escalate further after Chair Powell dismissed the likelihood of a July rate cut during remarks last week. Despite the Fed's hawkish tone, the dollar has continued to slide.

On the data front, Tuesday's Manufacturing PMI is expected to remain rangebound around 48. Wednesday brings ADP employment data, with forecasts pointing to a rise in job creation to 85,000. Thursday will see the release of Hourly Earnings, followed by an early Nonfarm Payroll report and Services PMI, which is projected to edge back above the 50 mark, signalling a return to expansion.

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.