February 17, 2025

“Geopolitics is taking a central role for markets this week, with the first talks between the US and Russia set to take place tomorrow. European leaders are having their own summit in Paris, meanwhile, and German elections are rapidly approaching. Some big data is also on the way, with UK inflation and the PMIs front of mind.”

Tim Hallinan – Trading Director

USD

The FX ‘Trump trade’ has run out of steam – for now – and the dollar has been undergoing a correction in recent weeks as markets dial down their estimations of the tariff risk.  The data also showed some softness during its 1.5% decline last week, with retail sales dropping 0.9% in January on Friday, and the outlook for the Fed-favoured core PCE inflation gauge looking benign after last week’s inflation data. Much of the gains made in Europe also originate from the prospect of peace in Ukraine. US Secretary of State Marco Rubio is in Saudi Arabia this week for talks between US and Russian officials tomorrow to test the waters ahead of a potential Trump-Putin summit – notably Europe and Ukraine have been left out for now. The data diary is relatively sparse, but we do get a set of Fed meeting minutes on Wednesday and the PMI surveys on Friday.

GBP

After vanishing growth and the UK’s fiscal dilemma led to a sell-off in January, many are rather surprised to see sterling trading near a two-month high this morning. The recent gains have come primarily from the weaker dollar and a wider improvement in European FX, but undoubtedly there has been a recovery in sentiment domestically, too. That is despite data like the CIPD survey over the weekend signalling that one in four UK employers is planning to cut jobs ahead of the NI rises in April – something that feeds into former BoE hawk Catherine Mann’s idea that we are headed toward a ‘non-linear’ downward adjustment in employment. The focus this week is on jobs and wage growth data tomorrow, followed by the January CPI inflation print on Wednesday, where the consensus is looking for some strong upticks. In other news, PM Starmer is pushing for the UK to act as a ‘bridge’ between the US and Europe and has even offered British troops for a peacekeeping force in Ukraine.

EUR

Geopolitics is the major focal point for the euro in a week that includes the ZEW investor surveys, the February PMIs, and German federal elections. Without an invite to the US-Russia talks in the Middle East this week, European leaders are scrambling to meet in Paris to discuss military spending and their position on the conflict in Ukraine. Though they have been assured that they would get a seat at the table during actual negotiations, the US’ solo approach is somewhat embarrassing for the EU and a fading US security guarantee would negate the positive impact on the euro, particularly if a deal includes some unfavourable terms for the eurozone. Perhaps this is why EUR/USD struggled to pierce through the 1.05 handle and is trading slightly below this morning.

Markets

Last week was positive for stocks across all developed markets except for Japan, where a stronger yen has weighed on equity prices. In Europe, Germany’s DAX and France’s CAC 40 both rose around 3%, while the UK lagged the continent with only a 0.4% gain. The S&P 500 lifted by 1.5%, but there will be no cash trading today with the US on holiday.

Main Economic Events (All Times CET)

5:30am: Japanese Q4 GDP
US Presidents’ Day Holiday

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