22 April 2025

GBP

Last week brought notable macroeconomic developments, including the widely anticipated interest rate cut from the European Central Bank and the UK’s lower than expected CPI inflation data release which dropped to 2.6% from the previous month’s 2.8%.

This week is expected to be quieter, with the focus turning to Wednesday’s Purchase Manager’s Index data.

For sterling, recent moves have largely been driven by external forces, particularly the respective strength and weakness of the euro and the dollar.

The pound remains somewhat of a passenger in global FX markets during the recent period of heightened geopolitical tension, such as the ongoing US-China trade dispute, especially after the UK lost its tariff ‘edge’ over the European Union.  As a result, domestic UK data seems to be playing a secondary role for now.

EUR

The euro continues to benefit from both policy and sentiment shifts. The European Central Bank moved as expected last week, cutting rates from 2.5% to 2.25%.

The decision, while priced in by markets, still contributed to an extension of the euro’s rally. EUR/USD climbed to its highest level in over three years, supported by both the ECB’s dovish tone and broader weakness in the US dollar.

Safe-haven flows have also played a role, with EUR/CHF hitting levels not seen since 2015 — a reflection of investor caution amid mounting global uncertainty and the shift away from the dollar as a traditional safe-haven currency.

Markets will be watching this week’s eurozone PMIs for further insight into the region’s economic resilience.

USD

The dollar weakened notably on Monday, pushing GBP/USD to its highest level since September 2024, with the pair approaching levels not seen since February 2022. EUR/USD also touched fresh highs, climbing to its strongest point since November 2021.

The moves come amid mounting uncertainty surrounding the stability of US financial leadership. Two months into Donald Trump’s second term, investor confidence in the traditional pillars of US economic strength — the dollar and Treasuries — appears to be waning. A renewed wave of criticism directed at the Federal Reserve from the president, including Trump’s most direct threats yet to dismiss Chair Jerome Powell, has rattled markets further.

Trump’s calls for immediate interest rate cuts, citing low inflation and falling energy and food prices, have also intensified. However, many economists, including Powell, continue to warn that recent tariffs could contribute to higher inflation and slower growth over time. The Fed has maintained a cautious stance, signalling the importance of containing inflation risks in the face of policy uncertainty.

The shift in sentiment has led some investors to move away from dollar-denominated assets, triggering what some are calling a ‘sell-America’ trade — a reversal of the bullish positioning that followed Trump’s initial re-election.

All eyes are now on upcoming US data releases, including PMI figures due tomorrow. Any deviation from expectations could either reinforce or challenge the dollar’s recent weakness.

Volatility is likely to persist through the week as markets digest PMI data and watch for any further developments from Washington. Currency moves continue to be driven more by political risk and global sentiment than by domestic economic data, adding to uncertainty within the markets.

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.