ACM Update 24-02-25

Written by: David Comber
Date posted: 24-02-25
German Elections

Last week saw a much steadier few days for GBP versus the majors. UK news was in the spotlight, with inflation ticking back up to 3% and average earnings continuing to outrun the cost of living. Unemployment remained static.

Alongside more comments from Donald Trump, the latest Federal Reserve minutes included concerns that the President’s policies look likely to have an upward impact on US inflation.

The final week of February has already kicked off with German elections, followed by some important US data releases in the second half of the week.

The assortment of UK economic data releases last week all pointed in the same direction in terms of UK interest rates, providing support to sterling. The Pound touched a nine-week high versus the US Dollar, and the best in seven weeks versus the Euro.

The UK releases were thick and fast. Unemployment for December was first up, maintaining a stable 4.4% having been expected to nudge up a fraction. The number of those claiming unemployment benefits did see a rise though, potentially a pre-cursor to the April budget changes.

Average earnings meanwhile continued to rise, with wage growth sitting at an annualised 6.0% last month. Great news for those in employment, less positive for those at the Bank of England who are trying to get inflation fully under control. With wages continuing to outrun inflation, consumers have greater spending power, which logically pushes inflation up further.

Meanwhile, the January inflation metric was released on Tuesday morning, displaying a move up from 2.5% to 3.0% in just a month. This puts the figure back at its highest in ten months. Ironically for Chancellor Reeves, the main driver behind this was the increase in private school fees, which she implemented in her budget. She remains “confident in our plan for change”.

All in all, the Pound was supported by the increase in inflation, as the direct result is that the Bank of England are likely to have to hold interest rates where they are for longer. A sluggish (at best) economy and stubborn inflation brings us back to the buzzword of stagflation in the UK economy once more.

Andrew Bailey also spoke publicly about the recently released Q4 growth figures. The Bank of England Governor stated that the slight growth at the end of last year does not change the general picture for the UK economy. The Bank’s committee still sees disinflation continuing, but believe the impacts of any incoming Trump tariffs remain “ambiguous”.

Elsewhere Government finance figures were released, the difference between tax revenue and spending. Whilst this hit the highest January figure since records began, it fell some £5bn short of what had been projected. Further suggestions bubbled that Rachel Reeves will need to either raise taxes further or cut spending to meet her own self-imposed economic targets.

Services and Manufacturing PMIs closed out the week for UK data but remained underwhelming at best. Movements on Sterling-Euro last week can be seen in the chart below, with the pair almost nudging 1.21 shortly before the close on Friday.

GBP-EUR last week

Eurozone news remained largely focused on events on the Eastern side of the bloc. The Russia-Ukraine conflict and the involvement of Trump on the topic, remains a major driver for the currency. As the back and forth continues in the press, we will continue to see volatility.

Over the weekend, another major driver has been the German elections. The Eurozone’s biggest contributor went to the polls after the incumbent three-party coalition fell apart late last year, leading to a snap election.

The conservative Christian Democrats have secured victory with 28.6% of the vote, beating the far-right Alternative for Germany party into second place. The incumbent Social Democrats slipped to third.

The Euro has strengthened slightly in early trading this morning, as fears of a far-right victory subsided when results began to filter through. New leader, Friedrich Merz has already suggested the need for Europe to forge its own path forwards, without Trump’s America.

German data last week showed a slightly stronger degree of optimism in the economy, with the ZEW Economic Sentiment numbers displaying an uptick. The Services and Manufacturing numbers for Germany outperformed too, whilst the overall numbers for the Eurozone were slightly lower in the former, but better on the latter.

After a quiet start with the Presidents Day bank holiday on Monday, the latest Federal Reserve meeting minutes were released on Wednesday evening. These were the first to express direct concerns that Donald Trump’s policies will have a direct impact on inflation over the coming months. Like the UK, US inflation now also stands at 3.0% and is on an upward path.

Linked to this, were comments on interest rate expectations going forwards. Powell and Co suggested that as long as the economy stays strong and inflation stays constant, they don’t see the need to ease rates further for now. This ties in with current market projections, that interest rates may not see fall again until the second half of the year.

In line with this, Fed member Michelle Bowman suggested that she needs greater confidence that inflation is actually falling, before being ready to look at more rate cuts. Her colleagues Patrick Harker and Christopher Waller agreed, declaring “steady” policy is required for now.

The Fed committee remain data driven, focusing largely on employment and inflation. There was also a mention regarding the debt ceiling, due to rear its ugly head again soon.

Naturally, Trump remains in the headlines across the board. He described the EU as “very unfair” to the US, as he announced new 25% tariffs on car imports, pharmaceuticals and microchips. EU trade officials meanwhile suggested they are keen to sit down and discuss with the White House a “mutually beneficial” trade deal.

Services and Manufacturing PMI data for the US was also released where the latter took a notable dip thus far in February. Sterling nudged up throughout the week, hitting a nine-week high on Friday.

Recent movements on GBP-USD can be seen in the chart below:

GBP-USD movements


The week ahead:

Monday – BoE Lombardelli speech (09:00 UK time), EU Final CPI inflation & Economic Forecasts (10:00), BoE Ramsden speech (13:15), BoE Dhingra speech (18:00)

Tuesday – German Final GDP (07:00), BoE Pill speech (14:00), UC CB Consumer Confidence (15:00)

Wednesday – Australian CPU inflation (00:30), G20 Meetings, BoE Dhingra speech (16:30)

Thursday – Spanish CPI inflation (08:00), ECB Minutes (12:30), US Prelim GDP & Unemployment (13:30), Fed Bowman (16:45) Fed Hammack (18:15), Fed Harker speeches (20:15)

Friday – BoE Ramsden speech (07:00), US Core PCE Price Index (13:30)

As we move into the final week of February, the Euro will likely be driven by the fallout from German elections in the early part of the week at least. We also have Eurozone CPI inflation this morning followed by the broader Economic Forecast for the bloc. The minutes from the latest ECB meeting are also released on Thursday lunchtime, which may give clues as to what to expect from their next meeting in ten days’ time.

UK data will be limited, aside from an assortment of speeches from many of the Bank of England’s policymakers throughout the week. Given the different members speaking, we should see a range of thoughts on the bast course of action from the Bank of England in their next meeting. This takes place on 20th March.

US data will be focused around a Preliminary GDP reading for Q4, projected to show some 2.3% worth of growth in the final quarter of the Biden reign. This is followed up by the latest Core PCE reading on Friday, the Fed’s chosen metric for measuring inflation.

Interest rate projections will indeed remain firmly in the spotlight this week. Interest rates globally are continuing to fall as inflationary pressures subside. These included cuts (as forecast) last week from the Reserve Bank of Australia of 0.25% and the Reserve Bank of New Zealand down by 0.50%.

Trump uncertainty remains central to market action at the moment, in all corners of the globe. For any pending currency requirements, make sure to reach out to the team to discuss the differing range of FX solutions we have available to you.

Have a great week.