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The first full day of US trading since President Trump’s inauguration saw the dollar lose ground to both the pound and the euro. While GBP closed out ahead of the euro on Tuesday, it lost almost all its gains when the markets opened on Wednesday, following new UK borrowing figures.
The pound’s gains on Tuesday may be surprising, considering employment data published revealed unemployment rose to 4.4% in the months following Chancellor Rachel Reeve’s autumn budget. However, those in employment saw average earnings increase by 5.6%. Coupled with anticipation that the Bank of England will cut interest rates when they meet in February, the pound strengthened against both the dollar and the euro.
Though, new borrowing figures released this morning brought sterling back down to earth. Office for National Statistics figures showed that borrowing was £17.8bn in December 2024, £10.1bn more than the previous year, £3bn higher than forecast by the Office for Budget Responsibility.
On the campaign trail, Donald Trump talked of wide and immediate trade tariffs on allies and adversaries. When he chose not to follow through with his threats on his first day in office, the dollar immediately fell by more than 1% against the pound and euro. With international leaders at the World Economic Forum and Canadian president Justin Trudeau stating they will fight any trade war started by the US president, many currencies rallied against the dollar.
It’s impossible to predict Trump’s next move or the impact of trade tariffs on Canada, Mexico and other nations and this looming threat is creating the potential for great volatility in the market. Christine Lagarde, president of the European Central Bank, will give a speech this afternoon that may lay out how the eurozone plans to respond to the threat of a trade war.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Borrowing figures knock sterling gains
After making gains on Tuesday, fresh data from the ONS knocked the pound back to earth. With no major new data to be released today, sterling’s position in the market is particularly volatile.
GBP/USD past year
EUR: Little movement from the euro
The euro benefitted from the easing of the dollar, but made little gain against other currencies. Later today, European Central Bank president Christine Lagarde will lay out how the eurozone plans to respond to increasing threats of a trade war.
EUR/USD past year
USD: Dollar eases following inauguration
The dollar lost ground against the pound and euro on Tuesday, ending weeks of rampant growth in anticipation of Trump’s inauguration. The president’s continued talk of trade tariffs has the potential to shake the market throughout the day.
USD/GBP past year
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