Sterling enters the week bruised but still afloat after recent stress in the bond market. As UK gilts (government debt) enjoyed their best week from a yield perspective since July, GBP/EUR slid by almost 1% while GBP/USD trended downwards but saw more modest losses.
Washington DC will be alive with all the pageantry of inauguration day today. For the rest of the world, the prospect of a second term for the always unpredictable Donald Trump poses as many questions as it does answers. After all the talk, Europe will soon get its answer as to how the trade tariffs promised on the campaign trail translate in practice.
Ahead of Trump’s return the International Monetary Fund (IMF) raised its 2025 growth forecast for the US economy from 2.2% to 2.7%. In the same report, the IMF’s chief economist warned that Trump’s policies could “reignite US price pressures… higher inflation would prevent the Federal Reserve from cutting interest rates and could even require rate hikes that would in turn strengthen the dollar and widen US external deficits”.
The inauguration is the main event of a quiet Monday, made all the more so by it coinciding with Martin Luther King Day in the US. A section of Europe’s high and mighty will be decamping to Davos for the week, where the little Swiss ski town plays host to its annual jamboree of economic and entrepreneurial conferences.
A significant bounce back for the Chinese economy gave emerging markets a boost on Friday. China’s economy grew by a brisk 5.4% in the last quarter of 2024, driven by solid industrial production and rebounding retail spending.
As for this week, markets will look to UK unemployment and the German ZEW economic sentiment study for some early direction on Tuesday. The Bank of Japan will make its next interest rate decision (another quarter point hike is forecast) before German manufacturing and UK services PMI round things off with a bang.
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