After an extremely volatile week in the markets, Sterling finished significantly stronger, driven largely by a sharp de-escalation in trade tensions. President Trump reversed proposed tariffs on Europe and the UK after confirmation that discussions are now underway around a longer-term framework involving Greenland. That shift in tone removed a major risk premium that had been hanging over European assets.
The move gathered further momentum on Sunday evening, with markets opening higher and GBPUSD breaking above 1.36, its strongest level since September. This created particularly attractive opportunities for clients selling Pounds and buying US Dollars, especially given how quickly sentiment flipped from risk-off to risk-on. The speed of the move is a reminder of how headline-driven this market remains.
Looking ahead, the coming week is packed with potential volatility, with several important data releases and central bank decisions.
Monday begins with Germany’s IFO business surveys, which are expected to improve on last month. A stronger reading would support the narrative that Europe is stabilising after a challenging period, offering some support to the Euro. Later in the day, US durable goods orders are expected to rise by 3.8 percent, a strong number that would underline resilience in US manufacturing and may offer short-term support to the Dollar.
On Tuesday, attention turns to US consumer confidence, forecast to rise to 90.6. If confirmed, this would suggest that higher rates and political noise have not yet materially damaged US consumer sentiment, which again could limit Dollar downside in the near term.
Wednesday is the key day of the week, with interest rate decisions from both the Bank of Canada and the Federal Reserve. No changes are expected from either central bank, but markets will be laser-focused on forward guidance, particularly from the Fed. The ongoing public tension between President Trump and Fed Chair Jerome Powell continues to unsettle investors, contributing to recent Dollar weakness. Any hint that rate cuts are coming sooner than expected would likely reinforce that trend, especially against Sterling and the Euro.
Thursday brings the Riksbank decision, where rates are also expected to remain unchanged. In the US, weekly jobless claims are forecast to rise, which would add to concerns that the labour market is slowly cooling, a further negative for the Dollar if confirmed.
The week finishes on Friday with Eurozone GDP, expected to slow to 0.2 percent. While not disastrous, this would highlight ongoing growth challenges for the bloc. Eurozone unemployment is expected to improve slightly, offering some balance. Later in the day, US PPI inflation is forecast to fall to 2.8 percent, reinforcing the view that inflation pressures are easing at the producer level.
Overall, this remains a market dominated by geopolitics, central bank signalling and headline risk. With Sterling having rallied sharply in a short space of time, volatility is likely to remain elevated, and timing will be crucial for anyone with upcoming FX requirements.
GBP/EUR 1.1515 GBP/USD 1.3652 GBP/AED 5.0195
GBP/AUD 1.9727 GBP/CHF 1.0604 GBP/CAD 1.8682
GBP/NZD 2.2873 EUR/USD 1.1850 GBP/ZAR 21.8822