There was significant movement in the money markets on Thursday, with the dollar dropping quickly. At one point, the dollar hit a near four-year low against the pound, and in the last week alone, it’s fallen over three cents on sterling. Looking back further, the dollar’s lost a full 16 cents per pound since President Donald Trump’s inauguration in January. While not as stark, the euro has seen similar gains over the dollar.
The recent exchange rate changes have been driven by the ceasefire between Iran and Israel. With the fragile peace holding, traders who bought up dollars are gaining confidence and moving their resources out of the dollar into other markets.
However, this weakening of the dollar isn’t a sign of strength in the UK economy.
Speaking at the British Chambers of Commerce annual conference, Bank of England Governor Andrew Bailey laid out the challenges facing the UK. Pointing to growing evidence of a weakening jobs market, smaller wage growth and, as a knock-on result, UK growth is likely to slow.
Bailey warned that 2025 is filled with uncertainty, saying that “Global trade policies remain unpredictable” and that “weighs on the global economy”.
Even though much of the uncertainty comes from the US, with Trump’s on-again, off-again trade tariffs, the American economy is also showing stark declines. As well as the weakening dollar, Thursday brought GDP data showing the economy shrank by 0.5% in the first months of 2025. Significantly more than the 0.2 predicted and the first contraction in three years.
While the EU economy got through Thursday largely unscathed, a survey of German consumers showed decreasing confidence in the markets and an increased desire to save. This is despite the cut to interest rates earlier in the month.
All this is to say that, with the pause on Trump’s trade tariffs set to expire on July 9, there is no way of making concrete predictions of what will happen to the markets.
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