Last week was anything but quiet, with renewed tensions between the U.S. and China, the ECB signalling stability on interest rates, and even an unusual public clash between President Trump and Elon Musk. These events contributed to significant volatility in FX markets, pushing GBP/USD sharply higher to 1.36 and driving silver prices to multi-year highs at $36, reflecting increased market uncertainty.
As we enter a new trading week, FX markets remain highly sensitive to geopolitical developments, especially the ongoing U.S.-China trade talks, alongside critical economic data releases.
Monday: China’s CPI Data & High-Stakes U.S.-China Trade Talks
The week begins with crucial economic data from China, where CPI inflation is forecast to slip into negative territory at -0.2%, signalling possible deflationary pressure—a worrying development for global markets given China’s economic importance.
Simultaneously, U.S.-China trade negotiations resume on Monday in London, following last week’s rare direct call between President Trump and Chinese leader Xi Jinping. U.S. Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer are meeting Chinese Vice Premier He Lifeng, aiming to resolve tensions around tariffs, technology exports (particularly AI chips), and rare earth mineral supplies vital for global tech and automotive industries.
Given the fragile state of global trade, markets will closely track developments. Positive news from these discussions could lift sentiment across risk assets, benefiting commodity currencies and equities, while setbacks could see investors quickly move to safe-haven assets like the USD, JPY, and gold.
Tuesday: Pressure Mounts on UK Labour Market
Tuesday’s key event is the UK employment report, anticipated to show unemployment rising slightly to 4.6%, accompanied by a dip in average weekly earnings from 5.6% to 5.3%. These indicators point toward weakening economic conditions in the UK. Consequently, Sterling may face selling pressure early in the week, especially if data meets or exceeds pessimistic forecasts. Traders could even front-run this event, positioning for a weaker GBP as early as Monday afternoon.
Wednesday: U.S. Inflation Puts Fed Policy in Spotlight
On Wednesday, U.S. CPI data will take centre stage. Inflation is expected to rise to 2.5%, with core CPI projected even higher at 2.9%. The resurgence in inflation, coupled with a robust job market, places the Federal Reserve in a difficult position. If inflation continues to rise, the Fed may be compelled to consider rate cuts to stimulate borrowing and spending, a scenario that could put downward pressure on the Dollar if markets price in potential easing.
Thursday: UK GDP and U.S. Economic Indicators
On Thursday morning, attention shifts back to the UK with GDP data, forecasted to contract by -0.1%. If confirmed, this would mark a troubling step towards a potential recession, likely fuelling further Sterling weakness unless an unexpected positive surprise emerges.
Later Thursday, U.S. markets will closely watch the Producer Price Index (PPI) and weekly jobless claims data. PPI is forecast to rise, highlighting ongoing inflationary pressures at the production level, while jobless claims are expected to edge lower, reflecting continued resilience in the U.S. labour market. This mixed economic backdrop could provide temporary support for the Dollar.
Friday: Eurozone Industrial Weakness and U.S. Consumer Sentiment
Friday concludes the busy week with Eurozone industrial production data, anticipated to drop significantly by -1.6%, highlighting continued weakness in European manufacturing, a negative factor for the Euro.
Later, the University of Michigan’s consumer sentiment index from the U.S. is expected to rise slightly to 53.5. Improved consumer confidence could lend the Dollar support, particularly after a week of potential volatility due to inflation data and trade negotiations.
Additional Considerations: Implications for Markets
The results of the U.S.-China trade negotiations this week will be crucial for overall risk sentiment, potentially overshadowing economic data. Any breakthroughs could spark relief rallies across global markets, strengthening risk-sensitive currencies. Conversely, a breakdown in talks would amplify risk-off sentiment, driving traders towards safe-haven currencies.
Additionally, the UK’s hosting of these critical negotiations provides a diplomatic backdrop, potentially influencing Sterling sentiment positively if outcomes are constructive.
Final Thoughts
We’re set for another volatile trading week, dominated by geopolitics and key economic releases. Staying well-informed and strategically positioned remains essential. If you need guidance or support managing your FX exposure, please don’t hesitate to reach out; I’m here to help.