Sterling and the euro each made sizeable advances at the expense of the US dollar on Monday. After a weekend of high political drama, a newly bullish mood swept through Europe, bolstered by cooling inflation and some muted numbers coming out of American manufacturing.
GBP/USD and EUR/USD each picked up around one cent yesterday, with sterling moving close to its highest level of 2025 against the US dollar. Despite a few peaks and troughs, GBP/EUR ended the day around where it had begun.
Eurozone inflation fell from 2.5% to 2.4% February, according to preliminary data. Price increases slowed in key areas like professional services and energy but picked up for some kinds of food and industrial materials.
In a sign of just how much foreign policy is dominating financial markets, European defence companies – the likes of BAE systems, Rheinmetall and Thales – have led a thundering rally since the start of the year. The Stoxx Europe aerospace and defence index, which tracks major military hardware and software providers, closed in on its best day in over four years.
Overnight, the United States announced it would suspend military aid to Ukraine. The decision was framed as an effort to force Ukraine back to the table on the minerals deal, although Ukrainian officials dismissed it as “unbelievable”.
The US manufacturing purchasing manager’s index (PMI) fell to 50.3 in February from 50.9 in January, below forecasts of 50.5. Price growth increased due to new tariffs, which also caused new order placement backlogs, supplier delivery stoppages and impacted inventories.
A new study from a prominent economic thinktank poured more fuel on the US dollar’s fire. The Peterson Institute for International Economics said the 25% tariffs on Mexico and Canada amounted to “the largest tax increase in at least a generation” that would cost the average American household over $1000 per year.
Earlier, a strong performance in China’s own PMI study helped the Chinese yuan build some momentum. While it failed to bring home any significant gains against rival currencies, the country’s focus (in the short-term, at least) is ensuring it staves off the worst of any potential tariffs coming from the USA. Robust manufacturing output is key to that strategy.
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