Sterling sinks against Euro as greenback sell-off sparks surge in single currency
The pound is set to post its steepest weekly decline against the euro since September 2022, as Friday trading unfolds under the weight of a broad-based collapse in US dollar exchange rates and a dramatic upswing in the euro. GBP/EUR appears likely to consolidate within a narrow band between 1.1428 and 1.1560 at interbank (IB) throughout the session.
During overnight trading in Asia, the pound fell by as much as 0.83%, reaching a low of 1.1489 before the London open. Despite some partial recovery, the pair remains subdued, largely due to a sharp 1.5% rally in EUR/USD, which climbed to its highest level since February 2022.
Sterling's retreat comes against the backdrop of widespread upheaval in USD-denominated markets. The US dollar has slumped as current account surplus currencies—most notably the euro, Swiss franc, and Japanese yen—have surged by over 2% this week alone.
This shift appears to be a reaction to the latest trade policies emerging from the White House, which are aimed at repatriating manufacturing of consumer goods. While the long-term impacts remain uncertain, the immediate effect is anticipated to dent corporate America's profit margins, challenging the lofty equity valuations that have defined US markets since the early days of Donald Trump's first presidency.
The equity sell-off has, in turn, provided significant momentum for safe-haven and surplus-area currencies. The euro, franc and yen have all benefitted, pushing down the trade-weighted dollar and renminbi. The Chinese currency has also breached key psychological thresholds against the franc, yen and euro, falling well below levels seen as acceptable by Beijing.
The simultaneous declines in both equities and the US dollar have created a feedback loop that risks becoming self-sustaining. Global investors tend to hold only limited currency hedges on overseas equities, meaning that when the dollar falls, their total exposure suffers a double blow—both from declining asset values and adverse exchange rate movements. This can prompt further equity sales, perpetuating the cycle.
Further compounding matters is the structural link between the US dollar and Chinese renminbi, stemming from Beijing’s basket-based management of its currency. This correlation means weakness in one tends to be mirrored by the other, amplifying the impact across global markets.
US inflation cools sharply in March, but tariff fears rattle markets
The U.S. Consumer Price Index (CPI) report released yesterday, showed that inflation cooled more than expected in March. Overall, prices dropped by 0.1% from the previous month — the first monthly decline since May 2020. On a year-over-year basis, inflation slowed to 2.4%, down from 2.8% in February and under the projected 2.6%. Core CPI, which excludes volatile food and energy costs, rose just 0.1% in March and registered a 2.8% increase over the past 12 months, its slowest pace since March 2021.
The drop in inflation was primarily driven by a 6.3% decline in gasoline prices, alongside falling costs for airline fares, used vehicles, and auto insurance. However, some categories still saw price increases, including food, medical care, apparel, and new vehicles. These mixed trends suggest inflation is cooling, but not uniformly across all sectors.
Despite the encouraging signs, markets reacted nervously. Stock indices like the S&P 500 and Nasdaq fell sharply amid concerns about future inflation pressures stemming from new trade policies. President Trump's recently announced 125% tariff on Chinese imports has raised fears that rising import costs could reverse some of the inflation gains. While the Fed may interpret the CPI data as supportive of a less aggressive stance on interest rates, ongoing trade tensions add a layer of uncertainty to the inflation outlook.
UK economy surges 0.5% in February, beating forecasts as manufacturing leads growth
Today, data out showed the UK economy grew by 0.5% in February 2025, outperforming forecasts of just 0.1%. This represents the fastest monthly expansion since March 2024 and comes after revised data showed flat growth in January, instead of the previously estimated decline. On an annual basis, GDP was up 1.4%.
Driving the growth was a 2.2% jump in manufacturing output—led by strong gains in the electronics, pharmaceutical, and automotive sectors—along with a 0.3% rise in services. Finance Minister Rachel Reeves called the results "encouraging," though there are still concerns about the possible fallout from new U.S. tariffs on UK exports, which could raise costs by at least 10%.
Market participants will also be watching the U.S. Producer Price Index (PPI) for March 2025 is set to be released today. Economists are expecting a 3.3% year-over-year increase, a slight uptick from the 3.2% recorded in February.
Last month, the PPI showed no change on a monthly basis, as a 0.3% rise in goods prices was offset by a 0.2% drop in service costs. Markets will be watching today’s figures closely for signs of underlying inflation, which could play a role in shaping the Federal Reserve’s next policy moves.
