ACM Update 02-06-25
Not that they were ever out of the headlines, but Donald Trump’s tariffs yo-yoed again last week, this time at the hands of a US court. Sterling-Dollar came back down from a 40-month high as a result. The minutes from the latest Federal Reserve meeting were also released, which displayed policymakers dealing with elevated levels of uncertainty.
The first week of June brings the latest European Central Bank interest rate announcement, as well as EU inflation figures. Then the May round of jobs data arrives from the US, culminating in Non-Farm Payrolls on Friday.
Following Monday’s bank holiday in both the UK & US, most major data releases took place over the remaining four days. US data has remained mixed, which is certainly impacting the US Dollar of late. Sterling-Dollar had reached a high of just under 1.36 on Monday with the lower liquidity in most western markets, before moving back down over two cents throughout the week.
The minutes from early May’s Fed rate decision arrived on Wednesday evening. The notes displayed a trilogy of upcoming concerns raised by policymakers. These were namely persistent inflation, a weaker employment market and slowing economic growth. The major policy difficulty would arise if inflation remained stubborn, whilst growth and the jobs sector weakened.
For now, inflation seems to be riding the tariff storm. The Federal Reserve’s chosen inflation index of Core PCE inflation showed just a 0.1% monthly increase in April, meaning an annual 2.5% rise. This equates to the smallest annual increase in four years, thus the widely expected rise in inflation is yet to materialise in the figures.
Growth remains the major short-term concern, with the US economy having contracted by -0.2% in Q1. This was compounded by figures showing US imports fell by 20% in April amidst all the tariff turmoil. To add fuel to the fire, Trump announced over the weekend that he is doubling tariffs on steel and aluminium to 50%. US consumer spending meanwhile rose by just 0.1% in April, when adjusted for inflation.
For now at least, American surveys suggest a much more optimistic outlook on the state of the country. Consumer confidence rebounded considerably in May, back from an almost five-year low. This was deemed due to the Trump administration backing down from some of their more extreme measures. The increase in confidence was broad across all age groups, but naturally more strongly felt by Republicans.
Outside of economic data, Trump and his team spent the week battling against the US Court of International Trade. The body deemed that the majority of the President’s recently unveiled tariffs were in fact illegal. A federal appeals court managed to temporarily pause the ruling, but it is likely to end up in front of the US Supreme Court in the weeks to come.
Amidst some sluggish US data, the prospect of the removal of tariffs was enough to drive the USD back against other majors last week. The move back down from the Monday high on GBP-USD can be seen in the chart below:
In better news for the UK economy, the International Monetary Fund opted last week to marginally increase the growth expectations for the year to 1.2%. The move came roughly a month after the body slashed their 2025 forecast from 1.6% to 1.1%. The IMF were less cheerful on the “difficult choices” that Chancellor Rachel Reeves has to make on balancing taxes and spending in the longer term though. Global trade tensions were also referenced as a caveat to future growth.
Remaining on the subject of UK politics, following on from major gains in English local elections in May, Sir Keir Starmer felt the need to go on the offensive towards Nigel Farage. The PM likened the Reform UK leader to former Prime Minister Liz Truss, suggesting he would “crash the economy” in the same way as she did. This came a few days after Farage had decided to unveil some proposed policies.
Back on economics, Andrew Bailey held the main UK event last week. The Bank of England Chief maintained his previous stance that the current economic uncertainty calls for a “careful and gradual” approach to rate cuts. It seems unlikely that another rate cut will be delivered on Threadneedle Street when their next meeting takes place on 19th June. Bailey also continued his calls for closer ties with the EU on trade and financial services, aiming to “reverse the Brexit damage”.
Aside from the above it was a quiet week for UK data, as sterling was largely driven by market events elsewhere.
On the continent, it was also a relatively quiet week with a number of EU holidays on Thursday. Amidst the quieter conditions on Monday, Christine Lagarde’s speech erred away from any comments on the Eurozone’s economic outlook and monetary policy.
Instead, the President referenced the Euro’s growing strength in global trade as an alternative to the US Dollar. Will the Dollar remain the world’s reserve currency amidst all of this uncertainty?
Other European data releases were relatively thin. German economic data remains sluggish, showing a -1.1% slump in retail sales in April. Overall unemployment rose and consumer confidence figures were still pessimistic, but their “least pessimistic” in seven months. Inflation saw a monthly rise of just 0.1% though.
French figures showed a modest rise in Consumer Spending, whilst GDP growth saw a tiny 0.1% uplift in Q1. In Spain, inflation figures dropped to their lowest since October, back under the 2% barrier again with a reading of 1.9%.
Sterling-Euro saw most direction from the US GDP data release on Thursday lunchtime, with the Euro for now the main alternative to the Dollar, gaining ground. Movements on the pair last week can be seen in the chart below.
The week ahead:
Monday – EU/UK/CAN/US Manufacturing PMIs (08:15-15:00 UK time), Fed Powell speech (18:00), BoE Mann speech (22:30)
Tuesday – Reserve Bank of Australia meeting minutes (02:30), EU CPI inflation (10:00), US JOLTS Job Openings (15:00),
Wednesday – Australia GDP (02:30), EU/UK/US Services PMIs (08:15-15:00), Bank of Canada rate announcement (14:45), Fed Beige Book (19:00)
Thursday – BoE Greene speech (08:45), ECB rate announcement (13:15) & Press Conference (13:45)
Friday – EU Retail Sales & Revised GDP (10:00), US Non-Farm Payrolls (13:30)
Into a new month we go, with a couple of major economic events in the calendar. From the US we have the pre-cursor to the next Federal Reserve meeting in two weeks’ time, in the form of the Beige Book data. This provides all economic data available since the last meeting, with the aim of aiding policy decision making.
The US highlight will be the latest jobs data though, released throughout the week before the crescendo of Non-Farm Payrolls on Friday lunchtime. Projections currently show an expected 130,000 jobs added to the US economy in May, which if correct would mark the lowest reading since October’s data. As always though, Non-Farm Payrolls numbers are rarely close to the forecast figure. Keep an eye on Friday lunchtime.
Eurozone news will be centred around Thursday lunchtime, in the form of the latest European Central Bank interest rate decision. The committee are highly likely to make it seven interest rate cuts in a row with another 0.25% reduction. This is already priced in by markets however, so any movement will come from forward guidance in the subsequent press conference.
Christine Lagarde will be hosting this as always, and the big question will be whether this rate cut (if it indeed materialises) will be their last one. There are differing opinions from within the ECB on this, so any direction from Lagarde on the topic will either strengthen or weaken the Euro accordingly during and after her press conference.
Aside from these, there are a few speeches of note to digest. Fed Chairman Jerome Powell speaks on Monday evening at an event in Washington DC, closely followed by Bank of England policymaker Catherine Mann. Her counterpart Megan Greene also features on Thursday morning.
All eyes are likely to be on the Dollar and Euro this week, so we can expect plenty of volatility on that pair. Thursday and Friday will inevitably be the two big days, and any signs of a US slowdown via the jobs market will likely see sizeable Dollar weakness. For clients requiring USD, make sure to get in touch with the team to discuss the three-year high that we find ourselves close to again.
As always, we are online and happy to discuss any pending requirements or concerns you may have.
Have a great week.
