The American economy grew by an estimated 3% quarter-on-quarter in the three months to June, propelling the US dollar to its strongest level against the pound since the end of May. Sterling meanwhile strengthened by half a cent against the euro before falling back on Wednesday afternoon.
Take those numbers with a pinch of salt, due to the glaring impact of Donald Trump’s tariff regime. Last month, imports plunged by 30%. This time around, they increased by almost 40%. Despite this rather comical up and down, currency markets decided it was proof enough of the American economy’s resilience, even with the imminent risk of a collision between the Federal Reserve and the White House.
On that topic, the Fed decided to keep interest rates at 4.25%. Jerome Powell once again refused to forecast when rates would drop and his hawkish tone boosted the dollar further. On a more contentious note, Wednesday’s vote marked the first split decision since 1993, as rate-setters discarded polite unity in the face of persistent political pressure. Michelle Bowman and Christopher Waller were the two governors who stumped for a cut.
The euro weakened on Wednesday despite a set of significant economic reports that came in largely better than expected. The only main downer was the German economy shrinking by 0.1% in the second quarter, slightly below forecasts of 0.1% growth.
However, the eurozone’s economy as a whole expanded in that timeframe. Spain and France each surprised to the upside with their performance, although Italy’s economy also produced less than expected.
The Bank of Canada voted to hold interest rates at 2.75% for the third meeting in a row. The Canadian dollar strengthened after the vote, as the governing council highlighted the economy’s resilience to tariffs.
While most major economies have signed trade agreements with the United States, the additional levies are still having a major impact in the corporate world. Sports retailer Adidas yesterday warned of €200 million hit to earnings, and markets fear the impact of tariffs will soon be felt by giants like Apple and Meta.
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