The first trading week of 2025 has seen more US Dollar strength after a volatile start to the week. On Monday we saw markets react to speculation that Trump wouldn’t be as aggressive with his pending trade tariffs which had sent Sterling back above 1.25. Only for Trump to come out and knock this down, which saw The Dollar recover the initial losses suffered. Yesterday we saw Services PMI for The U.S highlighting that prices paid by businesses have reached their highest levels since February 2023 and therefore bringing an increase in inflationary pressures. All of this has further cemented the ‘higher for longer’ stance for The Federal Reserve with their Interest Rates moving into 2025. Non-Manufacturing PMI data also soared to 54.1, notably up from 52.1 in December as well as beating initial expectations for this yesterday’s release.
Also weighing heavy on The Pound is the fear of an economic crisis nearing as government debt levels has led to borrowing costs surging to the highest levels since 1998. The UK Government borrowed £2bn on Tuesday, to be repaid over 30 years but more importantly at the highest interest rates since 1998. Lack of confidence in financial markets is at worrying levels, and if gilt yields continue in this fashion over the coming weeks, then Chancellor Rachel Reeves will have a tough decision to make on more spending cuts come April.
Moving in to today, we have the meeting minutes from The Federal Reserve’s December meeting. In that meeting, the committee signalled they would look to do just two interest rate cuts this year, importantly however they don’t see the first cut until at least July. Markets are now suggesting just 35 basis-points worth of cuts are on the table for this year, and crucially if the December minutes show hardened support for two cuts, then it wouldn’t be a surprise to see some further US Dollar strength overnight.
At the top of the hour, we have Consumer Confidence and Economic Sentiment set to be released. Although earlier this week we saw a slight uptick with their Inflation release which has ultimately dampened bets for rate cuts by The European Central Bank, and unemployment also sitting at an all time low of 6.3%, both consumer confidence and economic sentiment is set to weaken which could weigh heavy on The Euro. This could be contributed to the political troubles we’ve seen recently in both France and Germany. Now, although France seems to have sorted out a temporary solution to calm the storm, Germany’s government look likely to head to a no-confidence vote which will more than likely lead to a Snap-Election in March.
GBP/EUR 1.2053 GBP/USD 1.2433 GBP/AED 4.5687
GBP/AUD 2.0026 GBP/CHF 1.1342 GBP/CAD 1.7880
GBP/NZD 2.2166 EUR/USD 1.0305 GBP/ZAR 23.3870