The pound’s mixed fortunes
Sterling has been caught in the middle, weakening against the euro but strengthening against the US dollar. The latter move was driven by fears over US economic growth and increased expectations of Federal Reserve rate cuts, which improved UK-US interest rate differentials in the pound’s favour. GBP/USD surged 2.7% last week, breaking through key resistance levels and opening the door to a test of the $1.30 threshold in the near term. However, the daily chart suggests the pair is overbought, hinting at either a correction lower or a period of consolidation. From a valuation perspective, GBP/USD remains 4% below its 10-year average of $1.35.
Against the euro, however, the pound endured its worst week in two years, falling 1.6% before stabilising around its 50-week moving average—a key support level for over a year. The fiscal divergence between the UK and the Eurozone is tilting sentiment in favour of the euro, particularly as Europe’s substantial spending plans fuel growth expectations. Should GBP/EUR struggle to reclaim its 200-day moving average at €1.1929, further downside could be in store. However, a more stable UK fiscal outlook should help limit sterling’s losses, while near-term monetary policy and the pound’s yield advantage remain supportive.
In focus this week is the UK’s latest GDP data. The British economy has been on fragile footing since mid-2024, and January’s figures are expected to confirm a slowdown in growth from 0.4% to 0.1% month-on-month. However, the three-month average is forecast to improve from 0.0% to 0.2%. Unless the data significantly deviates from expectations, it is unlikely to influence Bank of England policy projections.
No "Trump put" to hope for?
The US dollar suffered its largest weekly decline since 2022, driven by a combination of economic uncertainty, weakening data, and renewed optimism in European markets following Germany’s historic debt announcement. Investors were left uneasy as concerns over trade, fiscal policy, and monetary direction continued to weigh on sentiment.
On Friday, US labour market data pointed to a slowdown, with nonfarm payrolls rising by 151,000—falling short of the 160,000 consensus estimate. While the miss was not drastic, it added to fears of an economic deceleration. At the same time, President Trump’s decision to delay tariffs on Canada and Mexico failed to reassure markets, which remained focused on long-term stability rather than short-term adjustments.
Investor confidence in Trump’s second term has also started to wane, as expectations of a repeat economic boom appear increasingly unrealistic. Both the President and Treasury Secretary Bessent have acknowledged the need for structural reforms, warning that market turbulence may accompany government policy changes. With government spending and employment levels deemed excessive, Bessent stressed that a reduction in both is necessary. As a result, investors are beginning to accept that there may be no “Trump put” after all.
US equities ended the week lower, reflecting these concerns, though Federal Reserve Chair Jerome Powell provided some temporary relief on Friday. Powell reassured markets that the economy remained on solid ground and that he was not overly alarmed by current conditions. However, his remarks failed to arrest the dollar’s slide, which continued into the weekend. With growing doubts over Trump’s economic agenda, history suggests that his approval ratings could also be at risk of a decline.
Betting on Europe again
The euro gained significant ground last week, benefiting from broad dollar weakness, a shift in investor sentiment, and renewed fiscal optimism in the Eurozone. Germany’s historic debt issuance announcement strengthened expectations of robust economic growth, while the European Central Bank’s (ECB) quarter-point rate cut was counterbalanced by a more cautious policy outlook.
On Saturday, ECB Executive Board member Isabel Schnabel warned that Eurozone inflation is more likely to remain above the 2% target for an extended period than to sustainably decline below it. Her remarks signalled a growing resistance within the ECB to further rate cuts in the near term. As policymakers prepare for a crucial decision in April, divisions are emerging over the extent of further monetary easing. Meanwhile, Europe’s economic landscape continues to evolve, with governments set to deploy hundreds of billions of euros in defence and infrastructure investment, particularly in Germany.
The euro surged by 4.4% against the dollar last week, marking its strongest advance since 2009—the year Germany introduced its debt brake. However, resistance emerged around the $1.0850 level as traders reassessed the implications of a hawkish ECB amid improving economic conditions. Looking ahead, market participants will closely watch Eurozone inflation data and ECB communications for further policy signals. With the region’s cyclical recovery gaining traction and inflation risks still high, expectations of additional ECB easing are becoming increasingly uncertain.
Carney to the rescue!
Former Bank of England Governor Mark Carney is set to become Canada’s next prime minister—at least for now. He will need all his experience in managing economic crises, as the country braces for an escalating trade war with its largest trading partner, the United States.
Carney made history in 2013 as the first non-British governor of the Bank of England, having previously steered Canada through the Great Recession as head of the Bank of Canada. His reputation for crisis management saw him recruited to Britain’s top banking role, where he played a key part in navigating post-financial crisis recovery and the Brexit fallout.
Unlike most prime ministerial hopefuls, Carney has never held elected office. Yet, he convincingly won the leadership contest to replace outgoing Prime Minister Justin Trudeau. Now, he faces one of Canada’s biggest economic challenges—a deepening rift with the US under President Trump’s aggressive trade policies.
However, remaining in power will be a challenge of its own. Canada’s next federal election is scheduled for October, but speculation is growing that it could be called as early as this month. Carney’s ability to transition from technocrat to politician will be tested as he seeks to steer Canada through economic turbulence while securing his position as prime minister.