International Trade Highlights

May 8, 2025

Cambridge

GBP

The main event for this week will be on Thursday with the Bank of
England (BoE) interest rate meeting, which is widely anticipated to
see a 25bp cut to 4.25 per cent, marking the second rate cut of 2025.

Many economists believe the central bank will transition to a more
dovish stance in the accompanying commentary, following US
President Donald Trump’s tariffs and general uncertainty about
his future plans, which could continue to raise concerns about
growth and inflation.

Further insights into the decision are expected when the central
bank’s Governor, Andrew Bailey, holds another speech on Friday
to discuss monetary policy plans for the rest of the year. Currently,
there are 3.8 further rate cuts priced in for 2025, with expectations
of a total of five rate cuts for the year.

Market expectations around the Bank of England’s interest rate
decision seem to have caused GBP/EUR to flatline after some
gentle strengthening of sterling over the last few weeks leading
up to a 3-week high last week. GBP/USD has also plateaued, with
present levels hovering around the 3-year high we’ve been
experiencing recently.

In other news, film tariffs are expected to be part of trade
negotiations between the UK and the US after President Trump
announced a potential 100 per cent tariff against all films made outside of the US. Trump announced these plans early this week to help the US movie industry, which he said was dying “a very fast
death”.

Responding to the development, Starmer’s Labour government
confirmed negotiations with Washington were ongoing, and it was
taking a “calm and steady approach” to talks in a bid to “ease
pressure on UK businesses”.

EUR

Last week, the Eurozone manufacturing Purchasing Managers Index was released from France, Italy, Spain and Germany. The overall Eurozone data released slightly above estimate at 49.0, rising at the fastest pace since March 2022, providing further evidence of recovery in the bloc’s industrial economy – albeit still below the key 50 threshold that indicates expansion.

Wednesday sees the only significant market event for the single currency this week. EU retail sales figures are forecast to drop from 2.3 per cent to 1.6 per cent.

Whilst the UK and US have interest rate decisions this week, the European Central Bank’s next meeting is not until Thursday 5th June. Despite this, the euro has been a significant benefactor of the tariff
announcements from the US. As such, EUR/USD has risen over 10 per cent from the lows seen in the last three months, up to levels not seen since the end of 2021.