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After last week's GDP uptick, the pound now faces a test of its resolve with more data on the way.
Sterling benefitted from unexpectedly positive GDP numbers (plus a notably weaker US dollar) to end last week on a high. In just one week, GBP/USD gained almost two per cent while the euro also made similar gains against the US dollar.
Existing US dollar weakness was magnified on Friday by some uncharacteristically poor retail data. Retail sales in the United States dropped by 0.9% month-on-month in January – the largest monthly fall since March 2023.
Deutsche Bank ended last week on a gloomy note by downgrading its forecast for UK GDP growth in the coming years. The bank now sees the British economy growing at 1% in 2025, 1.3% in 2026 and 1.5% in 2027. Those figures previously read 1.25%, 1.4% and 1.5% respectively.
The coming week looks like a busy one for currencies. The pound will be occupied with unemployment, retail sales and inflation data, which is expected to show signs of heating up again.
Elsewhere, the Federal Reserve’s FOMC minutes will be scrutinised in the usual fashion. Germany meanwhile has some key manufacturing data and the latest ZEW economic sentiment index to navigate.
The Japanese yen started the week on the front foot after GDP figures showed growth exceeded expectations in the final three months of last year. In that period, the economy expanded by 0.7%, putting the annualised figure near 3%.
Geopolitics continues to grab headlines the world over. In the Middle East, Hamas agreed to resume hostage releases after an Israeli threat to resume hostilities. Meanwhile, Europe scrambled to respond to Donald Trump and Vladimir Putin’s fateful conversation.
American vice-president JD Vance gave a highly political and provocative speech at the Munich security conference on Friday. In the presence of Europe’s political elite, Vance suggested “the threat from within Europe” – specifically freedom of expression and of elections – was greater than that posed by China or Russia.
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GBP: Don’t be fooled by GDP
Last week’s better than expected economic growth numbers were a huge help for sterling. However, few economists see it changing the UK’s outlook. Only sustained, solid growth numbers will help it to navigate the rough and choppy waters of a second Trump presidency.
GBP/USD: the past year
EUR: Euro shows mettle
The euro batted back the pound and zoomed upwards against the US dollar last week. Given many analysts had predicted EUR/USD would soon reach parity, that showing was a timely reminder of the single currency’s ability to weather the storm.
GBP/EUR: the past year
USD: Retail write-off
January is rarely the retail sector’s strongest month but this year was worse than most. A huge 0.9% decline in monthly sales consigned the US dollar to its worst weekly performance of 2025. A plunging dollar will look to start stronger this week but a reappraisal of President Trump’s policies is unlikely to help.
EUR/USD: the past year
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