October 27, 2025

US – Tariffs escalate with Canada; deal struck with China; FOMC decision in focus

US headlines last week centred on trade, the ongoing government shutdown, and monetary policy. The administration blacklisted two Russian energy firms, raising concerns over global oil supply.

Talks with Canada were abruptly cancelled following a controversial Ontario government ad quoting Ronald Reagan. In contrast, a temporary deal was reached with China to pause tariffs and delay rare earth export controls, though markets largely ignored the announcement.

The shutdown continues, now the second longest in history, with no progress in the Senate after 12 failed votes. Bloomberg reports suggest it could extend into Thanksgiving. The next vote is expected early this week, but expectations for a breakthrough remain low.

Friday’s CPI release showed headline and core inflation at 3%, below consensus. Markets now expect the Federal Reserve to cut rates by a cumulative 50bps before year-end, with further easing in 2026 bringing the Fed Funds rate to 3% by Q3. The dollar strengthened against most majors, though the euro held up relatively well.

This week’s focus is Wednesday’s FOMC decision. While consensus favours a 25bps cut, a minority of forecasters expect rates to remain at 4.25%, a scenario that could trigger renewed USD strength and pressure on EURUSD and GBPUSD.

UK – Quiet week ahead; Budget speculation continues

Last week’s UK data releases painted a mixed picture. September retail sales surprised to the upside, rising 0.5% month-on-month, reportedly driven by gold purchases and the launch of the iPhone 17. 

Earlier in the week, public finances data revealed a £10bn overshoot in the deficit halfway through the fiscal year. CPI inflation held steady at 3.8%, below expectations, while core inflation edged down to 3.5%. Retail price inflation also eased.

The October CBI industrial trends survey showed a sharp deterioration in total orders, falling to -38, the weakest reading since late 2024. Business optimism declined, though consumer confidence unexpectedly rose, albeit alongside increased savings.

These developments prompted a rise in expectations for a Bank of England rate cut before year-end, with market-implied probabilities climbing above 70% before retreating after stronger-than-expected data. Budget speculation continues, with potential tax changes under review, including the removal of LLP loopholes, low-value import exemptions, and adjustments to ISA allowances.

Sterling weakened against the US dollar, falling from $1.3420 to below $1.3350 over the week. GBPEUR peaked at €1.1534 before settling in the mid-€1.14s. This week’s UK calendar is light, with only a retail-focused CBI survey, consumer credit and M4 money supply data, and Nationwide house price figures due. FX market attention is likely to shift to developments abroad.

EUR – ECB expected to hold rates; Q3 GDP and October CPI to guide outlook

Last week’s euro area data offered a few surprises. Confidence indicators improved, and provisional PMIs showed a rebound in manufacturing and services activity, though French services unexpectedly declined. Moody’s held off on a credit rating downgrade for France, despite S&P’s earlier cut.

European Central Bank officials reiterated that no immediate action is needed but remain open to further easing if conditions deteriorate. Chief Economist Philip Lane noted that uncertainty may be undermining the effectiveness of past rate cuts, a point markets have largely overlooked.

This week’s euro area calendar includes September money supply, Q3 GDP estimates, unemployment data, and October CPI. While no rate change is expected at Thursday’s ECB meeting, the press conference and accompanying data could shape expectations for policy into Q1 2026.

The euro gained against sterling last week, supported by stronger survey data relative to the UK.

Author 

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.