Last week was relatively uneventful, with no surprises from the Fed, ECB, or Bank of Canada. But just as markets were settling into a steady rhythm, President Trump shook things up on Friday evening with new tariffs—25% on imports from Canada and Mexico and 10% on Chinese goods.
These announcements sent shockwaves through financial markets, as businesses brace for higher costs, supply chain disruptions, and potential retaliation from key trading partners. The U.S. dollar strengthened, as investors rushed to safe-haven assets, betting that the Federal Reserve may keep interest rates higher for longer to counter inflationary pressures.
How the Tariffs Could Impact the Dollar, Pound, and Euro
1️⃣ Stronger USD: With global uncertainty rising, investors are piling into the Dollar. If inflation fears intensify and the Fed delays rate cuts, the USD could continue to gain strength—making it more expensive for businesses and individuals outside the U.S. to hold Dollar-based assets.
2️⃣ Weaker GBP: The Pound could struggle, particularly with this week’s Bank of England (BoE) interest rate decision looming. If the BoE signals aggressive rate cuts, GBP may drop further—especially against a rising Dollar.
3️⃣ Pressure on the EUR: The Eurozone is already experiencing slow growth, and if Trump extends tariffs to the EU (targeting cars, luxury goods, and agriculture), it could weigh on the Euro further. A trade dispute between the U.S. and Europe would increase inflationary pressures in the U.S. and potentially weaken the Euro if businesses face uncertainty.
Key Market Events This Week
Monday: European Inflation & U.S. Manufacturing PMI
- Flash inflation numbers for Europe—not expected to shake up markets unless we get an unexpected reading.
- U.S. manufacturing PMI—likely to remain stable, meaning limited impact on USD unless the number deviates sharply.
Wednesday: UK Services PMI & U.S. Employment Data
- UK Services PMI—Expected to improve, which could offer some short-term relief for GBP if it beats expectations.
- U.S. ADP Employment Change—Forecasted higher than last month, which would support USD strength ahead of Friday’s big Non-Farm Payrolls (NFP) report.
- U.S. Services PMI—Slightly lower but still expected to remain above 50, meaning not a major concern for USD unless there’s a big surprise.
Thursday: The Big One – Bank of England Interest Rate Decision
- Current expectations: The BoE is likely to cut rates by 25bps, but some analysts are even calling for a 50bps cut (which seems a bit premature).
- Why it matters: Inflation in the UK is still a problem, so the BoE has a tricky balancing act. A rate cut could weaken GBP, but much depends on the forward guidance and the vote count (how many policymakers support further cuts).
- Market reaction: If the BoE hints at further rate cuts, GBP could drop sharply. If they hold steady or sound cautious about future cuts, GBP could recover slightly.
Friday: Non-Farm Payrolls (NFP) – The Most Unpredictable Release of the Month
- Current expectation: 170k jobs added (down from last month’s 256k).
- Why it matters:
- Bad NFP = Weaker USD → Rate cuts more likely
- Strong NFP = Stronger USD → Fed holds rates longer
- Market reaction: Given the Fed’s ongoing battle with inflation and President Trump’s trade policies, a weaker jobs number could drive up rate-cut expectations and weaken USD.
Final Thoughts
This week is packed with potential market-moving events. The biggest drivers will be Trump’s tariff impact, the Bank of England’s rate decision, and Friday’s NFP report.
GBP traders: Keep an eye on Thursday’s BoE announcement—it could be a major turning point for the Pound.
USD traders: Tariff uncertainty and employment data could keep Dollar volatility high this week.
EUR traders: Any hints of EU tariffs from Trump could pressure the Euro lower, making Thursday’s ECB guidance even more important.
If you’re planning a large currency transfer, now’s the time to stay proactive and monitor the markets. Feel free to reach out if you need guidance!