March 17, 2025

“Between five central bank decisions, a tanking US equity market, UK wage growth, landmark German fiscal reforms, and the possibility for another step towards a Ukraine ceasefire, there is plenty to keep FX in motion this week. US retail sales come first today, with markets keen to check up on the American consumer.”

Tim Hallinan – Trading Director

USD

The Trump administration gave markets a few extra reasons to doubt the persistence of the US economic exceptionalism narrative over the weekend. Treasury Secretary Bessent gave permission for the equity markets to sink lower by telling NBC yesterday that there are ‘no guarantees’ that there will not be a recession, while Trump presented his biggest test yet to the US constitution’s checks and balances, by defying a judge’s order to deport alleged gang members using a 1798 law.

Take your pick for catalysts for volatility this week. The first is a retail sales report this afternoon, where the consensus is a 0.6% rebound following a 0.9% drop in the January data. Much of the weakness in the dollar and US stocks depends on a softening consumer – they will likely fall lower if the hoped recovery does not materialise. Meanwhile, there are central bank decisions from the Fed, Japan, the UK, Sweden, and Switzerland – most of which will likely struggle to articulate a view on the future path of rates – alongside a call between Trump and Putin and a critical debt reform vote in Germany’s Bundestag tomorrow.

GBP

For the pound, it is all about the labour market data and the Bank of England decision on Thursday. The market expects policymakers to stick to their quarterly pace of rate cuts and is pricing in only a 4% chance of a rate cut, in large part because inflation is heading back towards 4% this year and wage growth is set to land at 5.9% for January. As with many others in the current policy environment, the BoE has been emphasising the idea of ‘uncertainty’ a lot recently and will likely make few commitments as to how quickly rates will be cut in the future. The consensus is for two more in 2025.

EUR

The euro had its wings clipped slightly last week as the broad dollar rebounded, but it remains up nearly 5% this month. There are opportunities for it to move higher this week – Germany’s big stimulus package and debt reforms are set to go through parliament, beginning with a Bundestag vote tomorrow, and investors will be looking for some more progress towards peace in Ukraine when Trump and Putin speak tomorrow. Those will keep markets busy in an otherwise data-light week, except for a ZEW sentiment survey tomorrow, where the consensus is expecting a big boost to expectations from the spending plans.

Markets

Stocks yo-yoed throughout last week as markets attempted the impossible job gauge the impact of Trump’s policy uncertainty on earnings. The S&P 500 dropped into ‘correction’ territory mid-week but posted a solid 2.1% gain in Friday’s session.

Main Economic Events (All Times CET)

1:30pm: US Retail Sales

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