Markets were shaken late on Friday after President Trump announced plans to impose 100% tariffs on Chinese imports, reigniting fears of a global trade war. The move sent shockwaves across asset classes – stocks, currencies, and even cryptocurrencies tumbled, triggering widespread liquidations.
By Sunday afternoon, however, Trump appeared to walk back his comments, reassuring markets that “everything will be fine with China.” This late reversal is likely to set the tone for a sharp rebound on Monday morning, as investors cautiously unwind risk-off trades and reposition for a more stable open.
Still, the episode highlights a broader theme that has dominated recent weeks – uncertainty, both political and economic. Between a lingering U.S. government shutdown, escalating trade tensions, and a sharp drop in global liquidity, volatility remains the order of the day.
From an FX perspective, the U.S. Dollar has been the main beneficiary of this nervousness. Since the shutdown began, the greenback has strengthened against most major currencies, with GBP/USD falling to 1.33 and EUR/USD dropping to 1.16 – both down around 2.5% over the last two weeks. The Dollar’s safe-haven status continues to draw inflows as investors seek stability amid fiscal gridlock in Washington. However, that strength could quickly unwind if there’s any resolution to the shutdown or if the Fed shifts its tone toward further easing.
This Week’s Key Events
While U.S. economic data remains limited due to the ongoing shutdown, the week still carries several key global data points and central bank speeches that could shape short-term FX moves.
Monday: U.S. markets will be closed for Columbus Day, leaving trading conditions thin. This could amplify any volatility stemming from fresh headlines around Trump’s tariff stance or developments in U.S.-China relations.
Tuesday: Focus turns to the UK labour market report, expected to show unemployment steady at 4.7%, with average weekly earnings unchanged. A softer reading here could pressure Sterling further, especially after last week’s mixed GDP revisions. We’ll also get Germany’s ZEW economic sentiment survey, expected to tick slightly higher as business confidence stabilises despite weak industrial data.
Wednesday: The Eurozone’s industrial production figures will be in focus, forecast at -1.8%, which would underline ongoing weakness in the European manufacturing sector – potentially weighing on the Euro. Later in the day, we’ll see U.S. manufacturing index data, expected slightly improved but still in contractionary territory. Given limited U.S. participation this week, these figures are unlikely to be major market movers.
Thursday: A more active session, with UK GDP expected to post a modest 0.1% monthly expansion – a small but welcome improvement that could help Sterling regain some footing. Later in the day, U.S. retail sales are expected to soften slightly to 0.4%, hinting at weaker consumer momentum amid ongoing political uncertainty.
Friday: The week closes with Eurozone CPI, expected unrevised at 2.2%. Markets will be watching closely for signs of sticky inflation, which could delay future rate cuts from the ECB.
Central Bank Commentary in Focus
Beyond data, monetary policy rhetoric will dominate this week’s narrative.
- Fed Chair Jerome Powell is due to speak midweek, and any comments on the economic impact of the shutdown or trade tensions could drive Dollar volatility. Markets are currently pricing in around 50bps of rate cuts by year-end, but Powell may push back on that view if inflation and labour conditions remain stable.
- BoE Governor Andrew Bailey will also deliver remarks, with traders eager for clues on whether the UK’s next rate move could come before the end of the year.
- ECB President Christine Lagarde rounds out the week, likely to reiterate a cautious tone as Europe balances slower growth with still-elevated inflation.
Market Outlook
With multiple risk factors in play – tariffs, geopolitics, and U.S. fiscal uncertainty – markets remain finely balanced between optimism and fear. The Dollar’s strength may persist in the short term, but sentiment can shift rapidly if progress is made on U.S.-China relations or the government shutdown ends.
For businesses and investors managing currency exposure, this environment underscores the importance of flexibility and hedging discipline.
GBP/EUR 1.1480 GBP/USD 1.3323 GBP/AED 4.8968
GBP/AUD 2.0431 GBP/CHF 1.0695 GBP/CAD 1.8662
GBP/NZD 2.3240 EUR/USD 1.1589 GBP/ZAR 23.0737