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While there were climbs through the day, with sterling hitting $1.30 for the first time since November, by the time the markets closed, GBP, USD and EUR were in much the same place as they had been at the start of the day.
With the United States’ Federal Reserve announcing its interest rate decision this afternoon and the UK’s Bank of England doing the same tomorrow afternoon, the currency markets seem to be still for the first time in weeks.
Both the Fed and the Bank are expected to keep the rates unchanged, but the decisions will be a major indicator of what these major financial institutions expect will happen to inflation in the coming months.
Trump’s on-again, off-again tariffs have brought so much volatility to global markets, that inflation is likely to rise, which would indicate a need for higher interest rates to bring costs back down. However, the UK and European governments have talked so clearly of the need for growth that the central banks will be under pressure to cut interest rates to encourage spending over saving.
Until traders know what the banks will do, they’re likely to show caution. Which is why Tuesday saw gold, the safe haven commodity, reach an all-time high of over $3,000 per ounce.
The big economic move of Tuesday was the German Bundestag approving the incoming chancellor Friedrich Merz’s €1tn infrastructure and military investment plan. The vote didn’t see immediate gains in the euro, perhaps because the spending plan still needs approval from the upper house, with that vote taking place on Friday. If the spending goes ahead, the euro will benefit from huge growth projects getting underway in the European Union’s most substantial economy.
The impact of Merz’s plans was evident, with a survey of German economic sentiment nearly doubling, sending the index to the highest level since February 2022.
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GBP: A high against the dollar
The pound briefly reached a $1.30 against the dollar, though it slipped back to $1.29 by the end of the day. All eyes are on the Bank of England, which will announce its interest rate decision on Thursday.
GBP/USD past year
EUR: Bundestag approves huge investment
The euro ended Tuesday slightly down on the pound and the dollar, but only marginally different from where the currencies started the day. Germany took a major step toward passing its historic investment deal, with final approval being cemented on Friday.
EUR/USD past year
USD: Markets hold breath ahead of Fed decision
The dollar lost ground early on Tuesday but ended the day close to where it started. However, there is caution in the market ahead of this afternoon’s interest rate announcement from the Federal Reserve bank. A cut is not expected, but not impossible.
USD/GBP past year
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