ACM Update 07-07-25
June produced stronger US employment data, which went against market expectations and strengthened the Dollar. Despite Trump’s calls for Jerome Powell to cut interest rates (and to resign), the jobs data could well see rates remain as they are for now.
In the UK, GDP was confirmed as having grown by 0.7% in Q1, but it was the tears of Rachel Reeves in Parliament that led to sterling jitters. European news was predominantly about the gathering of central bank leaders in Sintra.
In comparison, this week is somewhat quieter with the latest Federal Reserve meeting minutes and May’s UK GDP data, arguably the biggest events. There are also interest rate announcements in Australia and New Zealand throughout the week.
It was a “Big, Beautiful” week for Donald Trump last week, as both the Senate and House narrowly passed his tax and spending bill. He then used the Independence Day holiday on Friday to sign it into law. The President suggests that it will “turn this country into a rocket ship”, whilst budget offices believe it could add over $3 trillion to the US deficit over the next ten years. Watch this space…
The US jobs data painted a confusing picture last week. The first release was the US ADP figure, which showed that privately run businesses reduced their number of jobs in June. This was the first time that had happened in more than two years, as overall job numbers were reduced by 33,000 month on month.
This came as a surprise, with none of the Bloomberg economists polled having expected a decline. The reluctance to replace departing workers, was seen as a knock-on effect of the uncertainty of current trade wars.
But the Thursday Non-Farm Payrolls release produced an upside surprise, in delivering 147,000 jobs added to the economy overall. This was coupled with a drop in overall unemployment to 4.1%, from 4.2% in May.
Despite all of the calls for interest rate cuts from Trump, the outperformance of this data is ironically strengthening the case to keep interest rates where they are when the next Fed meeting takes place on 30th July. The better-than-expected data provided the Dollar with some strength on Thursday afternoon, in advance of Friday’s public holiday in the US.
Trump continues his attacks on Fed Chairman Jerome Powell though. Last week saw the latest social media post from the President stating “Too Late, should resign immediately!!!”. Powell himself spent part of the week at the ECB Forum in Portugal, where he openly stated that the Fed would have cut interest rates by now if Trump hadn’t implemented his tariff policies. The plot thickens.
The Dollar regained some strength, having been sat at a 44-month low vs GBP at the start of the new month. The chart for GBP-USD last week can be seen below:
The Bank of England Governor, Andrew Bailey, was also discussing the topic of the employment market last week, this time in the UK. He stated that global economic uncertainty had “definitely” hurt economic growth on home soil. He offered little concern on inflation though, just agreeing that the Monetary Policy Committee members are watching the data very carefully. Growth remains the concern.
On that topic, the UK economy was confirmed as having expanded by 0.7% in Q1. This was well received on the Labour front benches, with Sir Keir Starmer once again confirming it was the fastest growth rate of all G7 nations in the quarter.
However, it was the tears of Chancellor Reeves in the House of Commons during Prime Minister’s Questions on Wednesday, that caused marked nerves. Rumours of a looming Reeves sacking swirled but were quickly shot down by Number 10. That didn’t help the UK bond market or sterling though, both of which lost heavily throughout the day. The recent welfare vote debacle didn’t help the Pound either, as the U-turn further dented confidence in the Government.
With the next bank of England rate-setting meeting exactly a month away, MPC member Alan Taylor once again reaffirmed his view that cutting interest rates now would be better than waiting then rushing cuts later. Taylor voted for a cut in the June meeting also. With uncertainty and nerves ahead of the next meeting, Governor Bailey could only produce a “we’ll see” verdict on the next policy decision.
As mentioned already, the ECB Forum took place last week, at which all major global central bank heads attended. With Eurozone inflation now bang on target at 2.0% in June, Christine Lagarde was confident that the target had been reached, despite the current “tormented waters”. She maintained vigilance on inflation though and has confidence that the strength of the Euro is a reflection of the strength on the Eurozone economy.
The minutes from the most recent meeting though showed some debate on the potential of undershooting the inflation target. One factor in bouncing the inflation rate back from 1.9% in May to 2% in June was indeed viewed as the exchange rate though, viewed as a temporary impact.
Growth forecasts for the bloc were also revised to 0.9% for 2025 and just 1.1% in 2026. The next ECB meeting comes on 24th July which looks more than likely to deliver a hold, whilst the following September meeting has markets leaning towards another cut.
German inflation also fell to target in June, hitting 2% for the first time in nearly a year. Retail sales though remained sluggish, with a monthly drop of -1.6%.
Overall, the Euro saw a relatively flat week versus the Dollar, whilst gaining over 1% versus the Pound as a result of all the UK market wobbles. The GBP-EUR chart can be seen below:
The week ahead:
Monday – ECB Nagel speech (09:00 UK time)
Tuesday – Reserve Bank of Australia rate announcement (05:30) & Press Conference (06:30), ECB Nagel speech (15:00)
Wednesday – Reserve Bank of New Zealand rate announcement (03:00), BoE Financial Stability Report (10:30), Fed Meeting Minutes (19:00)
Thursday – US Unemployment Claims (13:30), BoE Breeden speech (16:00), Fed Waller speech (18:15)
Friday – UK GDP (07:00)
After a recovery week for the Dollar, it will be interesting to see if the recent data continues to see it regain ground. Since the 44-month low versus GBP last week, rates have bounced back by over 1.5%, through both better data and the knock-on effect that might have on the future interest rate path.
We will get the minutes from the latest Federal Reserve meeting on Wednesday evening (UK time), which will provide more clues as to the discussion. Over the weekend however, US bank Goldman Sachs have revised their own interest rate forecasts for the year, now moving to three rate cuts rather than two. Four Fed meetings remain between now and the end of the year.
With the Fed minutes being the only main Dollar release this week, we can expect those to be scrutinised and markets to be driven by any ongoing Trump shenanigans that may appear.
UK news is quiet too, bar the GDP data release for May, which arrives on Friday morning. The previous release for April showed a monthly drop of -0.3% so it will be interesting to see if and how things bounce back. Are the domestic tax changes and international tariffs having an even bigger impact than feared on the UK economy?
Aside from this we have a couple of speeches from Bank of England policymakers. The most significant being from Sarah Breeden, the Deputy Governor. The Bank’s six-monthly Financial Stability Report is also published, which comments on any risks in the UK’s financial system.
In the Eurozone, nothing bar a couple of speeches from ECB policymaker Joachim Nagel, who is head of the German Bundesbank. Key to the Euro this week will also be the 9th July deadline from Donald Trump for tariff agreements to be in place. Whilst the President’s team are notifying countries of their higher tariffs, the implementation of these has been kicked down the road (once again) to 1st August.
For more information about the products and services available to protect your foreign exchange conversions, make sure to reach out to the Aston team.
Have a great week .
