ACM Update 16-06-25
UK unemployment rose whilst the economy contracted in April, forming a bad week for UK data. Rachel Reeves also unveiled her latest spending review of the country’s cash-strapped finances. In the US, inflation rose by less than expected, whilst geopolitics were as a major market driver late in the week.
The coming week is filled with big releases, starting with G7 meetings taking place in Canada. May’s UK inflation data and the latest Federal Reserve interest rate announcement arrive on Wednesday, with the Bank of England’s policy decision on Thursday lunchtime. UK retail sales and the ECB’s Economic Bulletin close out the week.
The Dollar was the centre of a lot of movement last week, both in terms of data and geopolitics. US inflation for many months has been a hot topic, with expectations that Donald Trump’s policies would be driving the metric upwards, but this has yet to be the case. For May, a slight rise from 2.3% to 2.4% was recorded, undershooting estimates for the fourth month in a row.
Areas of price rises were in the cost of groceries and prices of new cars. This echoed data in the Federal Reserve’s own survey of economic activity from the previous week. The figures had suggested a moderate pace of price rises recently, with some areas of the country expecting ongoing increases to be “strong, significant or substantial”.
This adds to the argument that the full impact of tariffs is yet to be felt, due to how many of the threatened tariffs are yet to be set in stone. The TACO mentality (Trump Always Chickens Out) remains at play in many financial markets, where threats are made but not followed through.
With concerns from many corners about Trump’s “big, beautiful bill” adding to US debt, the most recent figures in that area weren’t great either. The May numbers showed a deficit of $316 billion, worse than projected. Consumer sentiment saw a recovery though, whilst Americans are scaling back their concerns on future rises in inflation.
In the latter part of the week, geopolitics in the Middle East saw the Dollar recover ground, through its status as a safe haven currency. Commodity-backed currencies such as the Canadian Dollar and Norwegian Krone also rose.
Trump meanwhile held a military parade in the US, whilst protests against him took place simultaneously nationwide.
Overall, GBP-USD finished the week roughly where it started, but significant events on either side caused a total range of well over 1%. The weekly chart is below:
UK data was busy last week too, where the latest GDP figures for April showed the economy shrank by -0.3% in the month, following the March 0.2% gain. Amidst a barrage of criticism, Rachel Reeves responded that the monthly figures can always be volatile, thus the rolling three-month growth of 0.7% is more of interest.
The slump didn’t come as too much of a surprise to many though. April included new tax measures, changes to employer contributions, as well as the unveiling and deployment of US trade tariffs. These are all likely to have had a detrimental effect in the month. The other simultaneous releases didn’t fare any better, with Manufacturing and Industrial Production figures also performing badly.
Tuesday morning’s UK unemployment news suggested that the new employer tax measures are leading to organisations holding off on hiring. The unemployment rate went up to the highest in nearly four years, with the claimant count nudging up by more than expected too. The number of payrolled employees in the UK dropped by some 55,000 in the month. From an inflationary perspective, average earnings (wage growth) continue to slow, now at 5.3% in April.
The other major UK event came from Rachel Reeves’ spending review of UK finances. Whilst it contained plenty of talking points, GBP movement off the back of it was minimal. The chancellor also spoke over the weekend, vowing that the Government will do “everything in its power” to protect the UK from price shocks coming from the Israel-Iran conflict. This came as the price of oil rose sharply on Friday.
With a number of Eurozone bank holidays on Monday, it was broadly a four-day week on the continent. Data was limited, with French and German inflation figures from May the only significant releases. These came in at -0.1% and 0.1% monthly change respectively, so little of note to report there.
We did hear from ECB policymaker Robert Holzmann last week. He is the Governor of the Austrian Central Bank and spoke during a national TV interview on Monday. When pressed for thoughts on the current status of EU interest rates, he reaffirmed sentiment that the pause in cuts could indeed last a while. This offered some slight stability to the Euro.
Holzmann also offered his thoughts on inflation, suggesting that the bank’s inflation goal was “already in reach”. His concerns about the Trump tariffs were limited too, being optimistic on them not causing too much impact on the continent.
Movements on GBP-EUR can be seen in the chart below:
The week ahead:
Monday – G7 Meetings, UK Rightmove HPI (00:01 UK time), ECB Nagel speech (08:00)
Tuesday – Bank of Japan rate announcement (03:00), EU Economic Sentiment (10:00), US Retail Sales (13:30)
Wednesday – UK CPI Inflation (07:00), EU Final CPI Inflation (10:00), US Unemployment Claims (13:30), Federal Reserve rate announcement (19:00) & Press Conference (19:30)
Thursday – US BANK HOLIDAY, Swiss National Bank rate announcement (08:30), Bank of England rate announcement (12:00)
Friday – UK Retail Sales (07:00), US Consumer Confidence (15:00)
This week then has a considerable amount of market data, with geopolitics likely to have a major influence too. Four of the major central banks have interest rate announcements to come, with the Bank of Japan, Swiss National Bank, Federal Reserve and Bank of England filling the middle part of the week. We also have G7 Meetings, with Donald Trump’s actions at the 2018 event (also held in Canada) still fresh in the mind.
May’s UK inflation data lands on Wednesday morning, which in April rose from 2.6% to 3.5%. This month forecasts are for a drop to 3.3%. Without a major drop in this metric, I think we can expect to see the Bank of England keeping rates on hold come Thursday lunchtime. A 7-2 split in favour of a hold is projected there.
For US interest rates, the consensus is for a hold in policy also. The current level of economic uncertainty is leaving the Fed with little option but to sit and wait, as any move could easily be a move in the wrong direction at present. Trump’s policies are yet to fully impact the economy either way. Thursday is also a bank holiday in the US (Juneteenth), so we can expect a quiet end to the week in US markets.
As mentioned, the further conflict in the Middle East will also have ramifications on the US Dollar as well as commodity prices. This is an additional factor to be considered.
Above all, uncertainty is the name of the game at the moment. Geopolitics, tariff impacts and also interest rate decisions are significant market movers. We are likely to see all of these impacting currency markets this week.
In such times, planning ahead on your currency requirements is always a beneficial strategy. The Aston team have different measures to protect you from market fluctuations, so make sure to discuss with us as to your best approach.
Have a great week.
