USD
Concerns over trade policies, inflation risks, and the Federal Reserve’s next moves are fuelling uncertainty across financial markets. Economic data presents a mixed picture—business confidence surveys hint at a slowdown driven by fears of tariffs and fiscal tightening, yet employment and manufacturing figures indicate resilience. This disconnect has deepened market unease, prompting the Fed to scale back its growth forecasts, while the OECD warns that US trade policies could weigh on global economic momentum. Fed Chair Jerome Powell has acknowledged these risks but emphasised that concrete data has yet to confirm a significant economic downturn. Despite this, the US dollar has struggled to benefit from its usual safe-haven status, as investors assess the long-term consequences of policy shifts.
This week, investors will be paying close attention to the early estimates of March’s Purchasing Managers' Index (PMI) figures, which will shed light on economic activity across key global sectors. In the United States, expectations point to a slowdown, with manufacturing PMI forecast to drop from 52.7 in February to 51, while the services sector is also predicted to weaken, slipping from 51 to 49.5. A downturn in these indicators could suggest a loss of economic momentum, potentially weighing on the US dollar.
Meanwhile, markets remain on edge as they await President Trump’s upcoming announcement on 2 April regarding a fresh round of “reciprocal tariffs” designed to tackle trade imbalances. While these measures are expected to be more precisely targeted than previous proposals, their wider economic ramifications remain unclear, keeping investors in a cautious stance.
GBP
The British pound has seen a mixed performance lately, shaped by global trade tensions, monetary policy shifts, and domestic economic pressures. GBP/USD has remained above $1.29, supported by the Federal Reserve’s cautious approach and expectations of interest rate cuts in 2025. However, the currency remains exposed to broader market jitters and geopolitical instability. Meanwhile, GBP/EUR has climbed back above €1.19, as the euro appears to have already priced in optimism surrounding fiscal reforms in Europe.
In the coming days, sterling’s trajectory will be influenced by key economic data and policy developments. This week’s flash PMIs will offer insight into how business activity is faring amid policy uncertainty, while upcoming inflation and employment figures will provide a clearer picture of the UK’s economic health and the Bank of England’s (BoE) policy outlook. The BoE’s decision to keep interest rates on hold last week lent some stability to the pound, but any downside surprise in inflation could trigger a shift in market expectations, weighing on sterling.
The most closely watched event for the pound this week is Wednesday’s Spring Statement, where Chancellor Rachel Reeves will address the challenges of rising debt interest payments and broader fiscal constraints. Investors will be paying close attention to updates from the Office for Budget Responsibility (OBR) for any indications of tax adjustments or public spending changes.
For now, GBP/USD and GBP/EUR remain in a delicate equilibrium, caught between domestic resilience and external pressures. While the pound draws support from steady growth prospects and a relatively firm stance from the BoE, increasing trade frictions with the US and global economic uncertainties could limit further gains.
EUR
The euro’s decline showed no signs of abating on Friday, with EUR/USD dropping to $1.08 after a third consecutive day of losses. The currency had been set for a third straight weekly advance, but weaker-than-expected economic data and a strengthening US dollar reversed its momentum.
Consumer confidence across the Eurozone took a sharper-than-expected hit in March, with the index sinking to -14.5, dashing hopes of an improvement. A similar slump in the wider EU measure reinforced fears that households remain hesitant despite a slowdown in inflation. In France, manufacturing sentiment continued its downward spiral, with the industry climate indicator slipping to 96—the lowest level since November. A significant weakening in foreign demand weighed on order books, highlighting ongoing challenges for Europe’s industrial sector.
The euro’s pullback is largely driven by renewed strength in the US dollar, as investors reassess the Federal Reserve’s policy outlook. While the Fed left interest rates unchanged last week, officials reiterated their forecast for two rate cuts this year, though inflation concerns remain prominent. Meanwhile, market participants are bracing for potential trade turbulence ahead of Trump’s planned tariff announcement on 2 April, which could put further strain on global commerce and Europe’s economic prospects.
Recent euro gains have been partly fuelled by Germany’s fiscal expansion, but with much of that now factored into the market, upward potential appears limited. The European Central Bank’s cautious approach further adds to the uncertainty, as policymakers weigh sluggish growth against persistent inflation. If economic conditions continue to deteriorate, speculation over a rate cut in the near future could gather pace, adding further downside pressure on the euro. For now, EUR/USD remains vulnerable, with risks tilted towards further losses if the dollar extends its rebound.
