Daily currency update
Finnish Central Bank Governor Olli Rehn said that the ECB may be ready to cut interest rates below the neutral level that keeps the economy in balance. He added that they expect inflation to fall further as a direct result of US tariffs imposed on the EU. When asked if the ECB would consider cutting rates by more than 25 basis points at their next meeting, he said; “we must analyse all options with an open mind and not rule out lowering borrowing costs below their neutral rate which is 1.75% – 2.25%.”
The Pound traded steady on Monday, heading for its strongest monthly performance since 2023. Part of the Pound’s resilience is due to the fact that markets anticipate the Bank of England to cut rates slower than other Central Banks. Adding to the Pound’s fortune has been an exodus out of US assets through April as a result of Trump’s tariffs from which the UK has benefited. Derivative markets are presently pricing in 85 basis points’ of cuts by the BoE through the rest of 2025.
The combination of weaker US growth and lower inflation is raising market expectations for the Federal Reserve to cut rates more aggressively this year. Last month, markets were expecting just 47 basis point (bp) of cuts in 2025 and that number has now risen to an 84% probability of 75 bp before year end. As the world becomes more fixated on moment-by-moment volatility in price movements, tariffs and geopolitical shocks the ability to reduce FX risk for our clients is ever more prevalent.
Key movers
ECB Vice President Luis de Guindos said that incoming data suggests that the Eurozone economy grew at a modest pace in the first quarter of 2025. He added, “Euro area exporters are now facing new barriers and tensions in financial markets coupled with geopolitical uncertainty which will most likely weigh on business investment. In this environment, consumers may become cautious about the future and hold back on spending.”
UK retail sales rose in March failing to challenge expectations for the Bank of England to cut rates in May amid growing uncertainty from tariffs imposed by the Trump administration. Retail sales jumped 2.6% in March compared to a 2.2% rise the previous month. Investors are keenly awaiting a speech from the Bank of England’s Dave Ramsden, and if there are any dovish undertones it could lend the Pound to weaken marginally.
In the US, there is a torrent of economic data due for release including the Personal Consumption Expenditures Price Index (PCE) due tomorrow. This is expected to show a fall in core inflation, excluding volatile food and energy costs. Analysts expect a drop from February’s reading of 2.8% down to 2.5% in March. Tomorrow also sees the release of US GDP with economic growth expected to fall from 2.4% to just 0.4% over the first quarter. Finally, we will see the release of US employment figures with non-farm payrolls due for release this Friday.
Expected ranges
GBP/USD: 1.3400 – 1.3450 ↑
GBP/EUR: 1.1750 – 1.1800 ↑
EUR/USD: 1.1375 – 1.1425 ↑
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