Market Update: GBP Strengthens, USD Weakens Amid Tariff Concerns, EUR Remains Under Pressure
Overview
The foreign exchange market experienced notable fluctuations over the past week, influenced by political developments, economic data releases, and shifts in monetary policy. This report provides an analysis of the GBP, USD, and EUR, highlighting key events from the previous week and offering insights into the upcoming week.
British Pound (GBP)
Recent Developments:
Spring Statement: On 26th March 2025, Chancellor Rachel Reeves delivered the Spring Statement, announcing significant spending cuts due to “global uncertainty.” The measures include reductions in welfare and public services, aiming to transform a £4.1bn deficit into a £9.9bn surplus within five years.
Planning Reforms: The government introduced planning reforms projected to generate an additional £3.4bn for public services, based on anticipated economic growth from increased housebuilding.
Market Impact:
Exchange Rates: The GBP/USD pair reached a four-month high, trading just above the 1.3000 level. This appreciation reflects market optimism following the government’s fiscal measures and planning reforms.
Investor Sentiment: While the spending cuts aim to stabilise the economy, concerns persist regarding their potential impact on public services and vulnerable populations. The effectiveness of these measures in boosting economic growth remains under scrutiny.
United States Dollar (USD)
Recent Developments:
Federal Reserve Policy: The Federal Reserve maintained interest rates at 4.50% during its latest policy meeting. Chair Powell highlighted uncertainties, particularly concerning the impact of tariffs on the economy.
Trade Tariffs: President Donald Trump announced the imposition of secondary tariffs, effective from Wednesday, targeting imports such as aluminium, steel, cars, and fentanyl. These measures have raised concerns about potential adverse effects on the U.S. economy.
Market Impact:
Exchange Rates: The USD experienced depreciation against the GBP, with the GBP/USD pair reaching a four-month peak. This decline is attributed to concerns over weaker growth and higher inflation stemming from the newly announced tariffs.
Inflation Expectations: The Federal Reserve’s upward revision of inflation forecasts to 2.8% has heightened market apprehensions about stagflation, contributing to the USD’s recent weakness.
Euro (EUR)
Recent Developments:
Economic Indicators: The Eurozone’s Harmonised Index of Consumer Prices (HICP) and Manufacturing PMI data released in March provided mixed signals about the region’s economic health.
Market Impact:
Exchange Rates: The EUR/GBP pair has been in steady decline since early 2023, currently trading at a three-month low. Technical analysis suggests potential further depreciation if support levels are breached.
Investor Sentiment: The Eurozone’s economic outlook remains cautious, with market participants closely monitoring upcoming data releases and policy decisions.
Monetary Policy and Inflation
Bank of England (BoE): The BoE maintained its current monetary policy stance, focusing on assessing the impact of recent fiscal measures and global economic developments on the UK’s economic trajectory.
European Central Bank (ECB): The ECB’s recent interest rate decisions and accompanying statements have been closely scrutinised, with markets adjusting expectations based on the central bank’s outlook on inflation and economic growth.
Federal Reserve: The Fed’s decision to hold interest rates steady, coupled with concerns over tariff impacts, has influenced market perceptions of future monetary policy moves.
Commodity Markets
Gold Prices: Gold prices experienced volatility over the past week, influenced by shifts in investor sentiment and reactions to global economic developments. As a traditional safe-haven asset, gold’s performance reflected market uncertainties.
Oil Prices: Oil markets responded to geopolitical tensions and trade policy announcements, with prices fluctuating in response to anticipated changes in supply and demand dynamics.
Upcoming Events (31st March – 4th April 2025)
Economic Data Releases: Key reports, including employment figures, inflation data, and manufacturing PMIs from the UK, US, and Eurozone, are scheduled for release. These data points will provide insights into the economic health of these regions and potentially influence currency valuations.
Central Bank Communications: Speeches and statements from central bank officials may offer further guidance on monetary policy directions and economic assessments.
Conclusion
The past week has seen significant developments impacting the GBP, USD, and EUR, driven by fiscal policy announcements, trade tensions, and economic data releases. Market participants should remain vigilant, closely monitoring upcoming events and data releases to navigate the evolving foreign exchange landscape effectively.
If you have upcoming currency requirements and would like expert guidance on navigating the markets, don’t hesitate to contact one of our consultants at 020 3876 5432.