USD weakens 3% to November 22 levels, GBP weaker, EUR rallies after debt-brake is lifted
In a very eventful week, attitude towards the USD has changed, with USD losing ground as Trump‘s headlines foster global uncertainty. We have important data this week which might be overshadowed by geopolitics and headlines.
GBP: GBP weakened especially vs €€ - GBP/EUR just about holding above 1.1850. Against the USD, the £ held gains to trade at multi-week highs of 1.2900. Friday’s GDP data will be the focus for GBP this week, but traders are nervous – Trump has not yet mentioned tariffs to be directly imposed on the UK, but sentiment suggests it is simply a matter of time.
USD: As Trump warns of economic turbulence during a “period of transition”, fears of a US recession increase, and the market is pricing in 80bp (0.8%) of rate cuts in 2025.
The New York Fed Consumer Sentiment Survey revealed that inflation expectations for one year in February increased from 3% to 3.1%. For the three—and five-year periods, they remained unchanged at 3%. Americans expect price increases in gas, rent, and food.
Wednesday’s CPI data will be very closely watched, following this reading that inflation seems sticky. Thursday’s Producer Prices data will give more clarity as well.
EURO: The €€ rose very sharply last week as the currency rallied due to the sell-off in European fixed income, which in turn was fuelled by the lifting of the debt brake in Germany – fundamentally changing the country’s fiscal spending.
EUR/USD remains steady around 1.0830 but struggles to trade meaningfully above 1.0850. Versus GBP, GBP/EUR fell from 1.2100 to 1.1900.
Wednesday, we have ECB President Lagarde’s speech which should closely follow her statements from last week where the Central Bank cut rates as expected BUT took on a more ‘wait and see’ approach to further cuts. Those statements lent yet more strength to the currency.
CAD: A miserable year for the Canadian currency, weighed by tariffs policies, threats from the US and a now faltering oil price. EUR/CAD spiked from 1.4700 in January to 1.5650 – a tough ride for any currency to take. Wednesday’s interest rate decision and Press Conference will be closely watched for signals of action from the Central Bank.