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The euro swept all comers to post one of its best weeks this decade.
GBP/EUR lost the best part of 2% last week as the eurozone finally flexed its muscles. EUR/USD strengthened by a whopping five cents across the week, a feat the pound only narrowly failed to replicate against its trans-Atlantic adversary.
The European Union decided it had endured enough of America’s whipsawing approach to everything from trade to defence, announcing a historic €800bn “rearmament plan”. That came just days after the German parliament’s significant plan to reform the country’s “debt brake” to allow for more defence spending.
This morning, we learned the German trade surplus narrowed to €16bn in January, several billion euros below expectations. That marked the first contraction in three months as imports soared to a 16-month high.
Rising US unemployment piled more pressure on the US dollar on Friday. Joblessness rose from 4% to 4.1% in February, while the American economy created fewer jobs (151k) in the non-farm sector than economists had predicted.
A bad week for the US dollar was compounded on the stock markets. The S&P 500 experienced its worst week since September, with major indexes driven back by tariff uncertainty and some underwhelming data. In fact, the wobble in US markets was large enough to leave many reevaluating their long-term economic projections for life under Donald Trump.
The Financial Conduct Authority (FCA) has outlined plans to ease the rules around mortgage lending, specifically stress-testing affordability rules with higher interest rates. Chancellor Rachel Reeves welcomed the changes and said they would “kick-start economic growth and help working families get on the housing ladder”.
Former Bank of England governor Mark Carney has won the race to replace Justin Trudeau as leader of Canada’s Liberal party. Carney will also become prime minister at a time when Canada is facing down Donald Trump, whose economic and military threats have become increasingly credible. There is also the small matter of a general election scheduled this year.
More crucial numbers are coming up for the US dollar. Wednesday’s inflation release is the star of the show, but there is also the Producer Price Index (PPI) and another job report to navigate.
Friday is the key date in sterling’s diary, which is when we’ll get to see initial GDP growth figures for January. Economists are forecasting a meagre 0.1% economic expansion from December.
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GBP: Bruised but not beaten
The pound lost ground to the euro but could find solace in a string of strong performances against the US dollar, the Canadian dollar and the Aussie dollar. As ever, it’s almost impossible to say if GBP/EU will move up or down this week, particularly as volatility seeps into every corner of currency markets.
GBP/USD: the past year
EUR: Higher spending sends euro skyward
Europe’s politicians intervened to give EUR/USD its biggest weekly advance this decade. The prospect of higher spending, and therefore more economic growth and debt, injected powerful momentum into the euro. Will the rally roll further, or will the euro hit its ceiling?
GBP/EUR: the past year
USD: Septimana horribilis
Last week was something of a horror show for the US dollar, which lost significant value against almost all other major currencies. American markets are growing skittish over the economy’s direction, a trend not helped by unpredictable government by tweet. It likely won’t be an annus horribilis but certainly a week the US dollar will want to forget.
EUR/USD: the past year
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