Foreign Exchange Analysis - 5th August 2025

Read via Portal

GB Pound

What happened last week?

The price action this week was driven primarily by large moves in the Dollar as the market digested their heavy data week. Realised volatility picked up nearly 20bps since the beginning of last week.

What to watch for in the short-term?

There is a BoE meeting this week on Thursday which the market currently prices a 97.5% likelihood of a rate cut to 4%. There could be a three-way divide between hold, 25bps, and 50bps. As officials try to balance a cracking labour market and sticky services inflation (currently north of 4%), the announcement could drag down the Pound against both the Dollar and the Euro, particularly if there is a shock 50bp cut. It will also be worth keeping an eye on the BoE's plans for QT which could provide some support for Sterling.

What about the coming months?

There are worries about the possibilities of stagflation in the UK especially with the October budget and the expectation of tax increases again. While taxation is typically disinflationary there are concerns about the increased pressure on employers.

Calendar

Thursday 12pm | Interest rate announcement

US Dollar

What happened last week?

The Dollar had a turbulent week but closed the week near flat. The DXY rose 1.6% between Monday and Thursday before giving all of those gains back during Friday's session. The gains came originally from the decision from the FOMC to hold rates at 4.25 to 4.5%. This was followed by a relatively hawkish statement from Chair Powell which provided support for the Dollar. There were two dissenters. The reason for Friday's correction was softer jobs numbers than originally anticipated and significant downward revisions to May and June's data too. The view was that the labour market was weaker than originally thought and as such there may be a different rate cutting cycle.

What to watch for in the short-term?

This week is quieter on job's numbers. With one of the FOMC members stepping down, there is a chance that Trump will nominate the next Fed Chair this week. This could have significant impacts on rates and the Dollar as markets.

What about the coming months?

We look forward to Jackson Hole on the 23rd of August and the statements made by Chair Powell. Given the recent jobs numbers, the market is now pricing in a 93% chance of a cut in September. Powell said that the key metric to watch is unemployment (rather than jobs created) because of the changing dynamics of the labour market as a result of immigration and deportation

Calendar

Tuesday 3pm | Services PMI

Euro

What happened last week?

EUR/GBP originally fell off the back of the EU-US trade deal before gaining back on Friday. There was a lot of noise surrounding the trade deal and the negative effects that it will have. In fact, it has only moved the effective tariff rate from 12.9% to 13.4% and it shows that much of the changes were driven by politics rather than fundamentals. June's inflation numbers were in line with expectations with headline inflation coming at the 2% target.

What to watch for in the short-term?

On the back of the trade deal negativity, the Sentix (an index that tracks economic sentiment) fell significantly to -3.7, it was at 8.3 before. There are few other small pieces of data coming this week in the Eurozone including PPI and retail sales. Both of these should add colour to the state of the economies but we are not anticipating much of a shock.

What about the coming months?

The EU is sensitive to energy prices and the recent decision by OPEC+ to increase production, as well as Trump's increasing desire to end the Ukraine-Russia war, could have implications to the area's economy over the coming months.

Calendar

Tuesday 10am | PPI

Wednesday 10am | Retail Sales

Call +44 (0) 203 884 992 to discuss further with an advisor.