Markets hold steady as trade talks resume and job data reshapes expectations

This week, investor attention is fixed on the renewed discussions between the United States and China, taking place today in London. On Friday, US President Donald Trump stated that a high-level American team would hold discussions with Chinese officials. Beijing later confirmed over the weekend that Vice Premier He Lifeng will take part in the talks. The latest round of negotiations followed a phone call between President Trump and President Xi on Thursday, during which Trump said the discussion centred largely on trade and had led to "a very positive conclusion for both countries". Chinese state news agency Xinhua reported that Xi urged the United States to "withdraw the negative measures it has taken against China". It marked the first direct conversation between the two leaders since the trade dispute began in February.

At the same time, the forthcoming inflation figures from the US — including the Consumer Price Index (CPI) and Producer Price Index (PPI) for May — are expected to influence market sentiment. Should core CPI remain stubbornly high, hopes for interest rate reductions at the 18 June Federal Reserve meeting may be deferred. A stronger-than-anticipated PPI reading could point to companies continuing to pass on increased costs to consumers, reinforcing the idea that inflation is proving more persistent than policymakers would like. In such a scenario, the Federal Reserve is unlikely to shift its position, potentially keeping Treasury yields elevated and limiting any significant decline in the US dollar.

Last week, market participants were preparing for indications of a slowdown in the US economy. However, that outlook changed on Friday following the release of nonfarm payroll data, which came in stronger than expected. The US dollar, which had been under pressure for most of the week, found renewed strength after the employment figures were published. Despite some downward adjustments to previous months’ data, the latest report was seen as further evidence of a labour market that remains surprisingly resilient. This came despite earlier signals of weakness, including disappointing ADP payrolls, a subdued reading from the ISM services survey, and a rise in jobless claims.

In May, the US economy added 137,000 jobs, slightly exceeding expectations. The unemployment rate remained unchanged at 4.2%, while wages increased by 0.4%, outpacing forecasts of 0.3%. Although previous job growth figures were revised lower, the latest data suggest that the labour market is cooling but has not deteriorated significantly.

So far in 2025, monthly job gains have averaged around 120,000 — a noticeable decline from the roughly 230,000 monthly average seen during the 2010s, when the labour force was smaller. Crucially, recent hiring has been highly concentrated in just a few sectors. Growth continues to be driven by services, with education and health services alone responsible for more than half of all job creation this year. Other service-oriented industries, such as leisure and hospitality as well as financial services, have also posted modest increases. In contrast, employment in manufacturing, mining, and agriculture — sectors more vulnerable to trade frictions and tariff shifts — has declined.

Euro struggles for direction as data and central bank signals collide

Last week, the euro faced yet another tug-of-war, with market sentiment caught between mixed signals from the United States and a resolutely firm European Central Bank. At the start of the week, traders appeared to shrug off robust figures for personal spending and job openings in the US, instead choosing to focus on weaker data from the services sector and employment surveys. This, combined with a notably firm stance from the ECB, briefly lifted the euro towards the $1.15 level against the dollar. However, that momentum was swiftly reversed following the release of strong US employment figures on Friday, which dragged the currency pair back towards $1.14.

Although the euro has shown some resilience, any lasting gains still hinge largely on the dollar losing ground. Price movements have been increasingly detached from economic fundamentals, making the path ahead uncertain. In the short run, fluctuations in bond markets may provide further opportunities for the euro to push higher. Over a longer period, however, the comparative strength of the US and European economies will be the key factor in determining whether the euro can sustain an upward trend.

Within the Eurozone, the ECB proceeded with a widely anticipated quarter-point rate reduction. However, President Lagarde’s unexpectedly firm message caught markets off guard. She indicated that the central bank is nearing the conclusion of its cycle of rate cuts, helping to bolster the euro even as inflation in May dipped to 1.9% year-on-year. Updated projections now suggest inflation could ease to 1.6% by 2026, though Lagarde played down the change, attributing it to lower energy prices and a stronger euro. The single currency was further supported by a rise in short-term interest rates, as traders began scaling back expectations of deeper monetary easing.

Looking to the week ahead, a number of important indicators from the Eurozone will help shape investor outlook. The Sentix survey is expected to shed light on investor morale in early June, following a strong rebound in May after April’s post-holiday lull. Meanwhile, inflation data from Germany and the latest EU employment figures will provide further insight into the region’s economic health.

Pound rallies lose steam as US data and UK growth concerns weigh

The pound made a brief push above $1.36 last week, reaching its strongest level since February 2022 — a milestone crossed only rarely in the post-Brexit era. However, the rally proved short-lived, with sterling retreating towards $1.35 after stronger-than-expected US jobs data prompted traders to reassess their optimistic positioning.

Against the euro, the pound has struggled to regain ground near the €1.19 mark, where the 50-day moving average currently hovers. Support has emerged from the 21-day and 100-day moving averages, but since mid-May, GBP/EUR has remained locked within a tight range. Despite this, differences in real interest rates suggest the pair could be trading closer to €1.20, given that the Bank of England has maintained a more assertive policy stance than the European Central Bank.

Sterling continues to find backing from domestic economic figures, which have generally aligned with the Bank of England’s firmer tone. Last week’s upward revisions to UK purchasing managers’ indices followed a surprising inflation reading in April, both of which have added weight to expectations that interest rates may stay higher for longer. That said, there is increasing speculation that the central bank may shift to a more cautious tone, particularly amid global trade tensions and signs that underlying inflationary pressures are starting to fade. Any such pivot could limit further gains for the pound.

In the days ahead, fresh data on the UK labour market and overall economic activity will provide greater clarity on the outlook. Tuesday’s employment figures and Thursday’s GDP reading are likely to attract close scrutiny. The labour market has shown signs of softening, though long-standing issues with the Office for National Statistics’ data collection methods suggest the figures should be interpreted with care. Meanwhile, monthly GDP is expected to show a modest contraction of 0.1% for April, as the temporary lift from pre-tariff stockpiling fades. Still, consumer spending has remained relatively robust, offering a degree of reassurance about the underlying health of the economy — a factor that should continue to lend some support to the pound.