Sterling continues to trade near a 6-week high against the US dollar this morning as traders anticipate the Federal Reserve to cut the interest rate by 25 bps on Wednesday evening. Recent macro data is pointing to a gradual cooling of the US economy which will further suggest a rate cut is all but certain. The pair is still trading in a tight range, however, as it seems further buying is being restricted until the release of US employment data this afternoon.

Sterling is also trading near a 6-week high against the Euro following a ‘relief rally’ in the wake of the UK budget last month. However, the downgrade to GDP assumptions following the budget and rising unemployment are expected to put continued pressure on GBP in the mid-long term, with some strategists now predicting the rate may drop off in the new year. It is worth noting that some major banks such as Barclays and the Bank of America are still confident that the GBP/EUR rate will continue to recover though.

President Zelensky is expected to present a revised peace plan to the US today, as he is adamant that Ukraine will not concede any land to Russia. Yesterday, Trump showed his frustrations at the lack of progress being made, but European leaders were shown side-by-side with Zelensky, helping relieve him from some of the pressure from the US to get the deal done. The leaders were also worried that the deal presented by the US would potentially leave Ukraine open to future attacks and invasions, however, the European leaders are walking a tightrope between backing Ukraine and keeping the US onboard. Zelensky is also maintaining his stance that any changes to their borders would need to be authorised by a public referendum.

President Trump is set to unleash a defense of his economic agenda of the back of a potential cut that would leave benchmark rates at 3.5-3.75% (lowest for three years), despite inflation running above its 2% target since 2021. Many economists also feel that the impact of Trumps trade tariffs have not yet been felt, highlighting the dependence on AI related capex driving wealth, making the worlds largest economy solely dependent on the top 20 tech firms in the country. Trump will look to help the lower incomes by exempting tips from taxation in his release of the “big beautiful bill” later this week. Trump has also flagged his concerns over the Netflix takeover of Warner Bros saying that Netflix already has a “very big market share” as the justice department ponders whether the deal violate competition laws.

In the UK, PM Starmer is set to house Ukraine leader Zelensky this week, with both German and French leaders also in attendance at number 10 as Europe rallies support for Kyiv in a ‘pivotal moment’. The US continues to mount pressure on Ukraine to take a deal with Russia to bring an end to hostilities. Russia continues to gain territory at its fastest rate since their invasion, the French Elysee fought rumours over the weekend that Ukraine was “on the brink of collapse”.

Angela Rayner is set to rejoin PM Starmer’s cabinet saying he expects the “hugely talented” former Deputy PM to return after her recent resignation over stamp duty on a Hove apartment in September. Elsewhere, Rachel Reeves mansion tax looks to his London’s housing market which will flatline for the next three years according to Hamptons estate agents, with others predicting a 5% drop in value next year.

In Germany, ECB member Isabel Schnabel set out her stool to replace Christine Lagarde by saying she would be comfortable with a rate hike from the central bank however she does not expect the hike to come soon despite investor bets gathering momentum. German benchmark borrowing costs rose to the highest since March after her comments with Yields on German 10-year bonds climbed three basis points to 2.83%

Tomorrow sees the RBA in Australia release their interest rate decision with a hold expected, Wednesday is FED day with interest rate cut expected in the evening, we also have a Bailey speech and Bank of Canada release. We finish the week with UK GDP where a slight increase of growth of the economy is expected (0.1%).

Trump has been busy over the past few days, going after the Intel CEO Lip-Bu Tan for supposed ties to Chinese communist parties, although this could be seen as Trump overplaying his hand and getting to involved with companies to align with his own interests. The US government has also secured 15% of revenue from Nvidia’s chip sales in China, (which amounts to $930 million based on 2024 sales).

Surrounding the EUR, most analysts are awaiting the UK and EU GDP data released later this week for fresh direction on the pair, with UK employment the main focus.

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Amid growing trade tensions between the US and the EU, the Euro is under renewed pressure. The economic impact of a trade war is becoming more unpredictable as EU officials prepare a response to possible U.S. penalties. As investors wait for clarification on how future negotiations and policy decisions may affect the region’s economic and currency outlook, market sentiment towards the Euro ultimately stays cautious.

Strong economic indicators and persistent consumer optimism are driving the U.S. dollar’s recovery. The U.S. economy is showing indications of health, and investors are supporting the dollar despite trade tensions and global concern. Actually, figures on the job market and retail sales have lessened the amount of downward pressure. Even though the economic calendar is quiet going forward, markets may be influenced by impending PMIs as they consider policy direction and growth velocity.

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With declining inflation in line with ECB targets and advancements in EU-US trade negotiations, the euro is expected to see small weekly gains. Despite a significant decline in German industrial orders and a slight increase in Eurozone unemployment, these worries were allayed by the anticipation that the ECB would halt rate cuts. ECB officials’ cautious remarks regarding the Euro’s strength, however, also point to increased susceptibility to future sharp fluctuations in exchange rates.

Friday’s robust economic statistics, which included a lower unemployment rate and a better-than-expected June jobs report, helped the U.S. dollar gain strength. Indeed, these numbers have reduced the likelihood of a rate drop by the Federal Reserve in the near future. In the end, a steady employment market and indications that the U.S. economy is still performing better than expected reinforce the dollar’s resilience in the face of impending tariffs and continued trade disputes.

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Last week, trade tensions, disappointing German economic statistics, and declining inflation throughout the Eurozone all had an impact on the Euro’s performance. Actually, the euro was originally bolstered by a halt in U.S. tariff measures, but sentiment was negatively impacted by rising German unemployment and declining retail sales. Markets foresee another interest rate decrease as inflation slows, but prospects for additional easing restrict the Euro’s short-term gain potential.

The U.S. Dollar traded slightly lower as uncertainty over tariffs and mixed economic signals weighed on sentiment. In fact, comments from a Federal Reserve official suggesting openness to rate cuts added pressure. Moreover, a temporary return of Trump-era tariffs and weak inflation data further clouded the outlook. Ultimately, investors are closely watching key economic indicators, including inflation and spending figures, for signs of the Fed’s next move.

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President of the EU commission Ursula Von De Leyen is now confident the EU can fast track trade talks with trump and arrange a deal as a result. The FTSE 100 and European/Asian shares were all up higher this morning as the Dollar now looks set for its 5^th straight month of declines. 

Trump was in dialogue over Putin over the weekend, saying that the Russian leader has “gone crazy” 3 years after his invasion of Ukraine as record numbers of drone attacks reigned on the capital Kyiv. The Kremlin responded by saying that trump was suffering from “emotional overload”. 

Japan released a government report suggesting that it will tweak its bond programme for this year to counter sharp rises in yields with concerns about troubled government finances. Long dated bond yields slumped as a result, sending the Yen and US treasuries lower as Tokyo looks set to prevent long term spikes in interest rates.

There are rumours amongst Tory backbenchers that Boris Johnson could be planning a comeback as Conservative leader Kemi Badenoch continues to dwindle in the polls, lagging behind both Labour and Lib Dems in recent showings. Most Tory MP’s suggest there is no appetite within the party for the former leader, saying that the landscape had changed. 

With PM Starmer pledging to restore winter fuel payments and a review of the two-child benefit cap, Chancellor Reeves is being forced into a £30bn tax raids to kickstart the economy according to latest (NIESR) research. 

After both US &UK holidays there is little data out today as market will focus from comments from BOE Governor Bailey on Thursday alongside US GDP, Friday sees a flurry of data with US PCE Core data a good indicator for US inflation. 

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However, critics are calling it a “surrender summit” in a betrayal of 2016’s decision to leave the EU, with fears that Starmer will bind us back to EU and ECJ.

Fishing rights look set to see an extension of current agreement due to expire next year, with over 70% of UK’s shellfish exported to Europe, the reciprocal access will last until 2038 no doubt causing a row in seaside towns. Fishing totals just 0.4% of UKs GDP. Many labour backbencher fear that Starmer appeasement to the EU will drive more voters to Reform. 

European leaders are looking to bend Trump’s ear ahead of his planned talks with Putin this week in what could be a pivotal week for Ukraine peace talks. Trump appears to have shifted tone to support Russia after Putin launched the war’s largest drone attack on Ukraine ahead of the call.

US equities dropped after moody’s cut the US top credit rating from AA1 to AAA, with its ballooning budget deficit continuing to widen, 30 yr treasury yields tipped 5% once more as the S&P & Nasdaq both made losses over 1%

Centrist Romania candidate Dan appears to have beaten far right George Simon in Romania’s election overnight, in a shift from populist sentiment which has seen gains amongst far right parties across the continent of late. Poland faces a similar battle of centrist and far right candidates ahead of their election on June 1^st. Portugal saw record gains for its centre right alliance however just fell short of a majority. 

Today sees EU inflation at 10am ahead of Australian Interest rate calls overnight. We have G7 meetings starting tomorrow and UK Inflation on Wednesday. European and UK PMI on Thursday and we cap the week off with UK Retail and House sales on Friday.

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The European Central Bank’s cautious stance and Germany’s poor economic mood statistics put pressure on the euro at the start of the week. Moreover, concerns over U.S. tariffs and their potential impact on Eurozone growth also weighed on the currency. In the end, investors are keeping a careful eye on the next PMI data since indications of economic pressure might further impact sentiment towards the Euro in the face of persistent uncertainty around the world.

As investors responded to President Trump’s proposals for immediate rate reduction and his attempt to restructure the Federal Reserve, the value of the US dollar plummeted, approaching a three-year low. In actuality, anxiety was heightened by contradictory trade signals and questions about the Fed’s independence. Even though Fed Chair Powell resisted pressure to lower rates due to inflation worries, the U.S. Dollar Index ultimately dropped 1.2% to 98.21, losing ground against the pound, euro, and Swiss franc.

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Amidst US-China trade concerns and a declining US dollar, investors sought safe-haven assets, which caused the Euro to gain strength last week. Germany’s political stability also provided support. The surge might not last long, though, if the ECB expresses a more cautious monetary view and executes the anticipated rate decrease on Thursday. In the end, a growing Euro might be detrimental to the EU, which would force the ECB to modify its policy position.

Concerns over Federal Reserve independence, President Trump’s unpredictable policy changes, and growing trade tensions with China all contributed to last week’s significant decline in the value of the US dollar. Additionally, anticipation about interest rate decreases was exacerbated by a 90-day tariff moratorium and weak inflation figures. Finally, analysts caution that sustained policy uncertainty may accelerate the Dollar’s short-term drop.

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