ACM Update 30-06-25
The Dollar was on the back foot for a variety of reasons last week, which saw GBP-USD hit a 44-month high in the process. The cooling of the situation in the Middle East, combined with concerns about the future independence of the Federal Reserve and poor recent data, all weakened the greenback.
As we close out June and enter the second half of the year, UK GDP and US jobs data releases take place, before the 4th July holiday in the US on Friday. The central bankers of the world will unite to spend time in Sintra, Portugal, attending the ECB Forum.
The US Dollar had its worst week for a while, as the currency was subjected to a range of factors which led to weakness. Whilst the ceasefire in the Middle East is undoubtedly good news, the Dollar was sold off slightly, having been attractive as an investor safe haven the previous week.
The future path of interest rates was also called into question, as President Trump once again made his opinions known on the future leader of the Federal Reserve. A Trump-chosen head of the committee is far more likely to cut interest rates, as per his wishes, than the current independent status provides.
Trump declared last week he had “three or four people in mind” for when incumbent Jerome Powell’s tenure ends next year. The President’s latest insults called the Fed Chair “terrible” and a “numbskull”. A lower possible path for interest rates thus weakened the Dollar.
Powell himself was in front of Congress last week for his semi-annual monetary policy report. He stamped out any chance of a Fed interest rate cut at their next meeting on 31st July, declaring it “still too soon”. He refrained from commenting on Trump policies, instead stating the Fed’s dual mandate remains as controlling inflation and maintaining maximum employment, both of which are being driven by White House decisions.
Other Fed policymakers are already calling for interest rates to be cut in the July meeting. Christopher Waller was indeed one of those last week. But concerns about the inflationary impact of tariffs, the ballooning fiscal deficit and a slowdown in the US economy, are likely to see US interest rates stay where they are for now.
US data remains weak, with the Final GDP reading for Q1 confirmed last week as an overall contraction of -0.5%. The simultaneous releases also showed a slight slowing in the jobs market, increased benefit applications and weakening consumer sentiment. These factors would usually all point to a potential interest rate cut being required.
But on the other side of the coin, the Fed’s preferred inflation-measuring metric of Core PCE Inflation rose by more than expected last month. Should that continue, the Fed will have a real policy conundrum on their hands, with a sluggish economy and inflation back on the rise.
Overall, it was a big negative week for the Dollar. Geopolitics, weak data, the future interest rate curve and concerns about the economy, are all factors which look likely to stay around for some time. GBP-USD sat at a 44-month high, as per the chart below:
UK economic news was centred around speeches and political U-turns last week. Bank of England Governor, Andrew Bailey was one of many members of the MPC panel speaking, and he maintained his slow and gradual expectations for UK rate cuts. He has concerns that the labour market in the UK is slowing due to Government policies, whilst also worrying about the recent uptick in inflation.
Fellow MPC decision-maker Megan Greene is another who is nervous about inflation again. She described the move back up in CPI inflation to 3.4% in May as “more of a plateau than a hump”, suggesting interest rates will likely need to remain where they are for now. Her comments also sought to reaffirm that rate decisions wouldn’t be premeditated though, but dependent on the latest data.
Both Bailey and Greene were a part of the six-person majority in voting for interest rates to be held at 4.25% in the 19th June meeting.
In 10 Downing Street, Sir Keir Starmer completed his latest U-turn of the month, this time in relation to benefits. This followed another earlier in June on the topic of winter fuel payments to pensioners. Both will be bad news for Chancellor Rachel Reeves, whose slim budget headroom seems to be disappearing quicker than barbeque food in a UK heatwave.
On the data front there wasn’t masses to report. The latest manufacturing figures showed an uptick in output in the sector, whilst the services sector was also slightly improved. On the high street though, the CBI (Confederation of British Industry) recorded their lowest level of sales volume in 18 months, as spending nerves continue since the recent tax changes.
Sterling movements were fairly modest, instead taking advantage of Dollar negativity for most of its weekly gains.
On the continent, Christine Lagarde spoke in front of the European Parliament last Monday. She reiterated that the bloc is still benefitting from a strong jobs market, but there is a suggestion of “weaker prospects” for economic activity in the near term. Her recent line of “growth concerns remain tilted to the downside”, once again made an appearance.
In another speech later in the week, the ECB President also spoke about removing trade barriers between Eurozone members, as she thinks they continue to hold back GDP growth.
Lagarde’s German ECB counterpart, Joachim Nagel, also spoke. He reaffirmed that the bank are currently unable to commit to any future rate decisions due to the high levels of market uncertainty. The next ECB interest rate decision on 24th July remains very much live, however we expect interest rates there to be held, based on current data.
On the figures front, the two main data releases were inflation from France and Spain. The French figure nudged up from 0.6% to 0.8% in May, still considerably below the ECB’s target. The Spanish equivalent went from 2.0% to 2.2% in the same month. The central bank have been projecting a slight nudge back up in inflation, thus these shouldn’t come as too much of a surprise.
Sterling-Euro enjoyed a pretty flat week with not much occurring either side of the channel, resulting in barely 0.5% worth of movement. The chart for the pair is below:
The week ahead:
Monday – UK Final Q1 GDP (07:00 UK time), German CPI Inflation (07:29), UK Mortgage Approvals, Lagarde speech (18:00 @ ECB Forum)
Tuesday – EU CPI Inflation Flash Estimate (10:00), ECB Lagarde/BoE Bailey/BoJ Ueda/Fed Powell speeches (14:30 @ ECB Forum), US JOLTS Job Openings, Canada Bank Holiday
Wednesday – Australian Retail Sales (02:30), ADP Non-Farm Employment Change (13:15), ECB Lagarde speech (15:15 @ ECB Forum)
Thursday – ECB Meeting Minutes (12:30), US Non-Farm Payrolls (13:30), US Services PMI (15:00)
Friday – UK Construction PMI (09:30), US Bank Holiday
After a hefty week of losses for the US Dollar, we go into a major week of US data releases, primarily around the jobs market. The June figures for Unemployment and Non-Farm Payrolls arrive a day earlier on Thursday this month, as the US celebrates Independence Day on Friday. The recent Dollar weakness will provide added significance, as further signs of an employment slowdown will likely add to the market jitters.
Ahead of that it is a busy week for the central bankers of the world, all of whom will gather in the picturesque surroundings of Sintra, just outside the Portuguese capital of Lisbon. During the event there will be a number of keynote speeches taking place, including a panel session on Tuesday afternoon. This features the respective heads of the European Central Bank, Federal Reserve, Bank of England and Bank of Japan to name but a few.
Given the number of central bank speakers attending the ECB Forum, significant comments with regards to upcoming monetary policy are eagerly awaited. Tuesday afternoon therefore could see volatility.
The other main ECB event of the week will be the minutes of their latest monetary policy meeting of four weeks ago. Despite now potentially being somewhat outdated given the ever-changing geopolitical landscape, it will be intriguing to see how much weight there is behind the feeling the European interest rates are going to stay put for a while. This release takes place on Thursday lunchtime.
With the USD selling off heavily and GBP-USD at a 44-month high, Dollar buyers are in a favourable position. If you have such requirements over the coming months, reach out to the Aston team to discuss the potential of forward buying your currency needs.
Have a great week
