By Kian Songra
To round up the end of last week, the US Dollar struggled against the Pound, as the Munich security peace conference suggested hope for the war to end in Ukraine. The ‘safe haven currency’, saw further losses over the Pound, as investors saw light into the positive talks to end wars. The US dollar is seen as a safe haven currency and when there is global conflict the Dollar tends to benefit from investors becoming more cautious. However now it is weighing heavily on the Dollar as the peace talks progress. GBP/USD was supported further after retail sales figures in the US posted worse than expected figures, with the reading showing -0.9% rather than the anticipated -0.1%.
Trump outlined plans to impose “reciprocal” tariffs on goods from countries that levy tariffs on the U.S., with implementation potentially starting as early as April. However, he surprised many by stating that he would also target countries with sales taxes like VAT, which would include the UK. The idea that VAT functions as a tariff, suggests a broader agenda aimed at generating revenue for the U.S. at the expense of both allies and rivals. This indiscriminate approach creates uncertainty in financial markets, making it difficult to predict where tariffs will be applied and to what extent. It also complicates how other nations can effectively respond.
This week
It’s a shortened trading week as US markets remain closed on Monday for Presidents’ Day. However, the week kicks off with European leaders gathering in France for an emergency summit, in light of the US potentially brokering a deal with Russia to end the war in Ukraine.
On Tuesday, Pound Sterling traders will closely watch Bank of England (BoE) Governor Andrew Bailey’s fireside chat on fostering openness in financial markets and the role of central banks. Any signals about the BoE’s policy direction, particularly regarding interest rates and inflation, could trigger significant volatility in the British Pound.
Before Bailey’s remarks, UK labour market data will be in focus. Investors will analyse employment figures, wage growth, and unemployment rates for insights into the strength of the job market. A resilient labour market could reinforce expectations for a more hawkish BoE stance, while signs of weakening employment could bolster the case for rate cuts.
Down under, the Reserve Bank of Australia release its interest rate decision. The consensus shows a cut in the rates to 4.1%, so with this in mind anyone with Aussie Dollar requirements, should look to contact their currency consultant to look at your options ahead of the week.
Attention then shifts to Wednesday’s UK Consumer Price Index (CPI) report for January, a crucial indicator of inflation trends. Markets will assess whether inflation is cooling in line with expectations or if persistent price pressures warrant a prolonged period of restrictive monetary policy. The predicted inflation figure is expected to increase from the previous reading by 0.3% to 2.8%. It will give investors a strong indicator into how the BoE will proceed with its future decisions, after various members spoke about ‘cautiousness’.
Inflation is a key reading that the policymakers in the BoE tend to look at, but now there is more attention being shown to growth figures, as the UK economy is showing signs of stagflation. Stagflation is the combination of high inflation, stagnant economic growth, and elevated unemployment.
Later in the day, the Federal Reserve’s January meeting minutes will provide valuable insight into policymakers’ views on inflation, economic growth, and the future path of U.S. interest rates.
Thursday’s key events include the usual U.S. weekly Jobless Claims data, a closely watched measure of labour market strength. Earlier in the day, the UK’s CBI Industrial Order Expectations survey will offer a snapshot of business sentiment and manufacturing demand.
Friday brings a busy economic calendar, headlined by preliminary S&P Global Purchasing Managers’ Index (PMI) data from both the US and the UK. These surveys provide timely indicators of business activity in manufacturing and services sectors. Additionally, UK Retail Sales data will give a fresh reading on consumer spending trends, a key driver of economic growth.
Beyond the scheduled data releases, markets will remain highly sensitive to developments surrounding Trump’s proposed tariff plans, as well as comments from Federal Reserve officials that could shape expectations for monetary policy.
With limited European data, staying in close contact with your currency consultant is crucial. With markets on edge, global emergency meetings, and key data releases in the UK and US, those looking to buy Euros could still be affected.