By Kian Songra
GBP/EUR has lost two cents over the last two weeks, with the Euro currently being favoured by investors over other major currencies. This was supported by Germany’s spending plan on defence and infrastructure in the trillions over the next 10 years. Friday’s unexpected fall in UK GDP, meant the Euro maintained its dominance over the Pound. Those hoping for the Pound to rebound, may want to reconsider your plans to mitigate the risk of the Euro strengthening further, ahead of any upcoming requirements.
Sterling maintained its ground and positive momentum over the Dollar last week. Uncertainty surrounding US President Donald Trump’s tariffs, diminishing recession fears, and concerns over a potential government shutdown have all contributed to strengthening sentiment around the US Dollar rate. On Wednesday, Trump’s 25% global tariffs on imported steel and aluminium took effect, adding to previously announced levies on Chinese, Canadian, and Mexican goods.
In response to the US tariffs on steel and aluminium, the European Union imposed a 50% tax on American whiskey exports, prompting Trump to retaliate with the threat of a 200% tariff on European wines and spirits.
This week
The week kicks off with a flurry of economic events, starting with the release of US Retail Sales data on Monday. Given consumer spending’s crucial role in the US economy, this report could significantly influence market sentiment and the trajectory of the US Dollar.
Tuesday brings mid-tier economic data, including US housing market figures and Industrial Production statistics, both of which will offer insights into the strength of the American economy. Meanwhile, the UK economic calendar remains relatively quiet, leaving the British Pound more susceptible to broader external influences.
The focal point of the week will likely be Wednesday’s Federal Reserve policy announcement. The Fed is widely expected to hold interest rates steady at 4.5%, as policymakers assess the impact of previous tightening measures and incoming economic data. Investors will closely analyse the Fed’s outlook on inflation, interest rates, and overall economic conditions, as these factors could dictate the direction of the US Dollar. Given the sensitivity of the GBP/USD pair to Fed decisions, any hawkish or dovish signals from the central bank could trigger significant volatility in the currency markets.
Adding to Wednesday’s importance, European inflation data will also be released, providing further context for the European Central Bank’s (ECB) monetary policy stance. A higher than expected inflation reading could strengthen the Euro, impacting the GBP/EUR exchange rate.
Thursday shifts the focus to the UK, with the release of key labour market data ahead of the Bank of England’s (BoE) policy decision. The UK labour market report is expected to show an increase in unemployment to 4.5% from the previous 4.4%. This release could have an influence on the important interest rate decision that follows shortly after this release.
The BoE is also anticipated to keep interest rates on hold at 4.5%, as it monitors inflationary pressures and economic growth. Market participants will scrutinize the BoE’s commentary for any hints on the timing and extent of future interest rate cuts. Any deviation from expectations could lead to sharp movements in the Pound, over the major currencies.
Friday lacks major economic releases from both the US and the UK, but market attention will remain on speeches from Federal Reserve officials as they break their post-meeting ‘blackout’ period. Their remarks could provide further clarity on the Fed’s policy stance and influence market positioning heading into the following week.
Beyond economic data and central bank communications, ongoing developments in global trade policy, particularly tariff-related headlines. This will continue to shape market sentiment. Any new measures or retaliatory actions from major economies could inject additional volatility into the currency markets.
Given the recent market volatility, staying in close contact with your currency consultant is crucial, as fluctuations in exchange rates could mean your property is now costing thousands of pounds more than expected. For those selling Euros, you could look to take advantage of this volatility. Our various contract options can help mitigate risk ahead of your currency requirements.