ACM Update 10-03-25
It was all eyes on the US last week, with Trump tariffs, US jobs data and the Fed’s latest Beige Book publication, all sharing the limelight. The President may be confident in his economic plan, but US consumers and investors don’t all share the same optimism.
In Europe, the ECB opted for another (predictable) rate cut of 25 basis points. Whilst in Germany, the likely incoming coalition took the brakes off the nation’s debt with a view to boosting the economy. All of a sudden, the Euro was off to the races.
US inflation and UK GDP are the two major releases this week. The former is hoping to get back under 3% whilst the latter is attempting to stay in positive territory. Newly appointed Canadian Prime Minister, Mark Carney, vows to take the trade war battle to Trump.
Starting off with the big data releases, US jobs data was out last week which showed a slight slowdown in jobs added to the economy. All of the major employment releases demonstrated this, led by the ADP jobs data on Wednesday delivering half the expected additions.
Friday afternoon meanwhile saw the main Non-Farm Payrolls data produce 151,000 jobs added in February, a fraction shy of the 159,000 predicted. The recent Trump/Musk layoffs of Government employees were seemingly also a factor in headline Unemployment rising from 4.0% to 4.1% in the month.
The President’s actions have been a major economic talking point of late. Federal Reserve Chairman, Jerome Powell, spoke late on Friday evening on the topic. Powell suggested he isn’t worried at the moment about the economic effect of Trump’s tariffs but is awaiting “greater clarity” on policies before deciding the next step on interest rates. Wait and see from the top man for now.
The Atlanta division of the Fed meanwhile aren’t quite as optimistic. Their latest numbers last week predict a massive 2.8% contraction in GDP in Q1, having suggested a 1.3% drop just a couple of weeks ago. This added to the Dollar’s woes last week. The Head of the Atlanta Fed, Raphael Bostic, doesn’t think there will be enough clarity until “late spring or summer” though, to determine the next interest rate move.
The Federal Reserve’s latest Beige Book was released on Wednesday night, the pre-cursor to their next meeting on 19th March. This too showed fears about the impact of tariffs on prices and a shift towards stagflation in the US economy as a whole.
Meanwhile Donald Trump spent his week yo-yoing back and forth on his tariffs. The President implemented some, then reversed some, then announced others, then threatened additional ones. All this whilst not ruling out the possibility of a recession in the US. His so called “period of instability” has not been good for the US Dollar of late, with tariffs looking likely to drive up the prices of cars, fuel, alcohol, housing and some food staples.
Last week saw the Dollar weaken across the board, with GBP-USD and EUR-USD both hitting 4-month highs. Ironically this dates back to a mere couple of days after the Trump election victory. As uncertainty on policies, the economic outlook and the inflation position continues, we are likely to see the Dollar continue to have a tough time.
Movements on GBP-USD last week can be seen in the chart below:
On the UK side of the pond, the latest Manufacturing and Services figures showed stability in both sectors. The housing market is remains buoyant also, with Mortgage Approvals data released for February staying strong. Lower interest rates, and the prospect of further cuts, has seen mortgage approvals up 20% compared to a year ago.
Whilst UK data releases were limited to the above, we heard plenty from members of the Bank of England’s rate-setting committee last week. This showed a continued mix in sentiment between different policymakers.
Catherine Mann’s recent shift to calls for larger rate cuts seems to be continuing, stating that “gradual” was no longer the right approach for her. She believes the recent bump up in inflation will simply be absorbed and not cause any longer-term pricing issues.
Opposing that is Alan Taylor, who “strongly argued for the use of the words gradual and careful” in the most recent Bank meeting. He also has concerns that businesses and consumers are putting off spending as a result of wider economic uncertainty, as well as the potential impact of April’s tax changes. He suggested that all meetings are currently “live” in terms of the potential for policy change.
A third speech came from policymaker Megan Greene. She pointed out that this is likely to be the fifth consecutive year of inflation remaining above target, advocating the more gradual approach to policy reductions and “external communications that are clear and reflect caution”.
The above did little so support GBP last week. Despite the mix of views, markets look towards the next Bank of England meeting in ten days’ time (20th March) to quite likely deliver a hold in interest rates. Two further interest rate cuts are currently forecast for the remainder of 2025.
In Europe, there were two major events last week. The European Central Bank’s latest meeting led to a widely-predicted interest rate cut of 0.25%. The move marked five cuts in a row for the committee, dating back to September’s meeting last year. With inflation now felt under control, the goal on the continent is to attempt to stimulate some economic growth through lower interest rates.
On the subject of growth, in their policy meeting the ECB were also forced to reduce their growth forecast for the bloc down to 0.9% for 2025. This is followed by a projected 1.2% and 1.3% for the following two years. Inflation meanwhile, was revised slightly upwards for this year to 2.1%. This came a couple of days after the latest Flash Estimate for European inflation came in at 2.4% for February.
The second big event came from Germany, where the bloc’s largest economy has been contracting for the past two years. The incoming coalition agreed a massive €500 billion infrastructure fund and removal of the national debt brake, to revamp its military and boost economic growth.
The debt brake is seen as an antiquated approach from after the 2008 financial crisis. According to an independent poll, some 49% of Germans would support the change, with just 28% against. The change still needs a two-thirds majority in parliament, so there is a rush to get the amendment through via the outgoing parliament.
As mentioned, the Euro surged on the news against most majors. The Sterling-Euro chart from last week can be seen below:
The week ahead:
Monday – Eurogroup Meetings
Tuesday – ECOFIN Meetings
Wednesday – ECB Lagarde speech (08:45 UK time), US CPI Inflation (12:30), Bank of Canada Rate Announcement (13:45) & Press Conference (14:30)
Thursday – US PPI Inflation & Unemployment Claims (12:30)
Friday – UK GDP (07:00), NIESR GDP Estimate (09:00), Prelim UoM Consumer Sentiment & Inflation Expectations (14:00)
A brief reminder that clocks went forwards an hour in North America at the weekend, therefore all major US events are an hour earlier (the times listed above are adjusted) than they would be usually. UK and European clocks don’t change for another three weeks.
With GBP-USD sitting at a four-month high and some nervousness about the state of the US economy, the Dollar could well remain on the back foot. Wednesday sees the latest CPI inflation reading for the US from February. Crucially this will be the data from the first full month of Trump 2.0 and a period in which the President’s policies went back and forth.
An upward move in inflation would likely see interest rate cuts in the US kicked further down the road. But they would also create nerves around the impact of tariffs ongoing. The data is projected to show inflation dropping from 3.0% to 2.9% however, thus we shall see.
Sterling data meanwhile is reliant on GDP figures for January, to be released on Friday morning. After the remarkable December bounce back of 0.4% monthly growth, can January keep things in growth territory? The reading is estimated at 0.1% but the Chancellor and Sir Keir Starmer will be hoping for considerably more.
On the Eurozone side, not masses of note. Christine Lagarde holds a Wednesday morning speech, which follows two days of meetings for the Eurogroup and ECOFIN members. Further news on the German debt situation is likely to be a major contributory factor towards Eurozone fortunes this week.
Over the weekend, we have seen former Governor of the Bank of England, Mark Carney, win the battle to become the next Canadian Prime Minister. Carney won the leadership for the Liberal party with 85% of the vote and vows to win the trade war versus Trump. He does still need to call and win an election by 20th October though.
Looking at all of the above, economically it looks like a quieter week this week. But with Donald Trump at the helm in the US, the last few months have shown us that anything can happen in FX markets. With over 2% movements on GBP-EUR & GBP-USD last week, we can reasonably expect more of the same in terms of volatility this week.
For more information on budget-protecting measures such as limit orders and forward contracts, reach out to the team. Sterling-Dollar sitting at a 4-month high presents a good buying opportunity.
Have a great week.
