ACM Update 09-06-25
With inflation now just under their 2% target and a focus on growth, the ECB declared themselves as “getting to the end” of rate cuts in their Thursday meeting. In the US, tensions rose between Musk & Trump over debt concerns, whilst jobs data came in broadly as expected.
This week brings UK unemployment and GDP figures, plus the latest on US inflation.
Just a matter of days after Elon Musk left his White House post last week, the billionaire was busy trading insults with his former “boss” Donald Trump. The pair were involved in a very public spat, clashing over the President’s “big beautiful bill”, which Musk and others believe will see US debt rocket upwards.
Trump also remained in the headlines as a result of his latest trade moves, as he pressed forwards with a doubling of steel and aluminium tariffs to 50%. This has further raised tensions, at a time where his negotiation teams are in the middle of discussions with many countries about their trade duties. Despite some tariffs having been declared illegal, they are in place whilst an appeal over them rumbles on.
Will the latest measures follow the previous pattern, which markets are beginning to refer to as “TACO” (Trump Always Chickens Out)? This is where the President issues threats, only to back down soon after. Only time will tell, but his actions continue to cause instability.
One example Dollar-negativity last week came from the OECD (Organisation for Economic Cooperation & Development), who felt the need to significantly reduce global growth forecasts. This was their second such cut this year, cutting US growth to 1.6% in 2025, down from 2.2% as recently as March. The global outlook also moved down to 2.9% from 3.1%.
With the knock-on effect of tariffs yet to fully impact the jobs sector, the data is beginning to slow slightly. Hiring moved to its slowest in two years, increasing by just 37,000 jobs according to ADP figures. The Non-Farm Payrolls data meanwhile showed the second slowest month for expansion in the last nine, as employer nerves begin to wobble. These figures are projected to slow more over the coming months.
All of this ties in with the Federal Reserve’s Beige Book publication, which was released on Wednesday evening. The latest set of figures aimed at assisting policymakers in two weeks’ time, displayed the dreaded trifecta of declining growth, rising prices and slowing hiring. These match the OECD concerns, pointing to a contraction in the US economy over the course of the last six weeks.
The only consolation for the US Dollar, is the fact that all of the above uncertainty is likely to see Fed policymakers sitting tight on 18th June. A confusing picture with ongoing short-term uncertainty means an interest rate cut is unlikely, as the committee awaits more clarity before making their next move. The dwindling prospect of a cut helped the Dollar back from midweek lows, after GBP-USD had hit a fresh 40-month high on Thursday afternoon.
Movements on GBP-USD can be seen in the chart below.
On the continent, the latest ECB meeting delivered an expected rate cut, but a much firmer narrative. The committee “almost unanimously” voted for an interest rate cut of the expected 0.25%, with just “one dissenter” according to President Lagarde.
Despite the risks to growth still pointing to the downside and the outlooks for inflation being more uncertain than usual, the decision makers felt the need to declare they are now “getting to the end of the monetary policy cycle”. Lagarde confirmed their meeting had not featured discussions on what the neutral rate for policy would be, but their seventh consecutive cut may well be the last for a while. Markets now expect the next ECB meeting (24th July) to feature a hold in interest rates.
The decision was one of two factors which provided a boost to the single currency last week. The other was the most recent inflation reading, which indicated a figure of 1.9%, thus under the 2% target. This gives even more confidence that European interest rates are now where they need to be, and potentially where they will stay.
Friday morning saw two other Eurozone releases in the form of retail sales and GDP data. Retail sales numbers from March to April remained sluggish, with an increase of just 0.1% between the two. Meanwhile Q1 GDP was revised upwards to 0.6%, which marks the best quarter for European growth since Q2 of 2022.
The Euro enjoyed a better week as a result but is still likely to face headwinds from Trump tariffs moving forwards. Negotiations between the US and Europe continue as they move towards Trump’s 9th July deadline.
In the UK, Bank of England Governor, Andrew Bailey, continues to press the Government to restore closer ties with the EU. He has also, somewhat comically, been suggesting how they manage their own taxation policies economically. In a speech last week, he confirmed that inflation concerns remained a discussion point during recent MPC meetings. Are UK interest rates set for another hold in ten days’ time?
One Bank of England policymaker always concerned about inflation pressure is Catherine Mann. She spoke in Washington last week, stating that US foreign trade policy is causing volatility and uncertainty in the UK market.
Elsewhere, UK mortgage approvals hit their lowest in April, since June 2024’s figures. The slowdown wasn’t too much of a surprise, with potential buyers likely to have held off for the widely expected (and duly delivered) Bank of England interest rate cut on 8th May.
UK Services sector PMI figures fared slightly better in May, providing a small amount of GBP support early in the week. On the foreign trade side of things, the UK was fortunate to be spared the wrath of the 50% steel tariff. However, the “special relationship” still means a duty of 25%.
Overall, a flatter week for GBP with a lack of major data releases. The GBP-EUR chart for last week is shown below:
The week ahead:
Monday – AUS/SWI/FRA/GER Bank Holiday
Tuesday – UK Unemployment/Claimant Count/Average Earnings (07:00 UK time)
Wednesday – US CPI inflation (13:30), US Federal Budget Balance (19:00)
Thursday – UK GDP (07:00), US PPI & Unemployment Claims (13:30)
Friday – UK Consumer Inflation Expectations (09:30), University of Michigan Inflation Expectations & Consumer Sentiment (15:00)
A few European bank holidays kick off the week on Monday, as overall events are somewhat quieter this week. The UK has the biggest proportion of market releases, with the latest round of Unemployment information first thing on Tuesday. In amongst this, Average Earnings are projected to have fallen slightly to 5.3% (from 5.5%). This metric is seen as key when looked at as the differential between inflation and wages. Unemployment meanwhile is expected to have nudged up slightly.
The other major UK data release is GDP for April, arriving first thing on Thursday morning. This is forecast to show a -0.1% drop, to follow on from March’s 0.2% expansion.
From the US, we have the latest round of inflation data to be released, in the from of both CPI & PPI on Wednesday and Thursday. The CPI data (for the month of May) is projected to show a rise to 2.5% as tariffs start to impact the US financial system.
As mentioned, a broadly quieter week for market events. We are sandwiched in between the ECB meeting last week, and both the Federal Reserve and Bank of England policy meetings next week. These for now both look like a hold in interest rates seems the most likely outcome, but the data releases this week may impact that.
US politics and unrest will potentially also weigh heavily on the US Dollar as we start the week, which has been evident thus far this morning already.
Overall, we still have favourable opportunities for Dollar buyers at current rates, just off a 40-month high. Volatility remains high though, so ensure to discuss any new requirements with the Aston team. Forward contracts remain a popular tool to remove uncertainty and volatility, so make sure to discuss these with your account manager.
Have a great week.
