Sterling recovered some of its losses yesterday as, much to the surprise of some, the British chancellor Rachel Reeves remained as chancellor.
The pound gained close to half a cent on both the euro and US dollar. GBP/USD is more than 1% up over the month, but GBP/EUR’s losses since late May remain significant at around 2.5%.
Indeed, in European financial circles the main topic of conversation seems to be what economic policymakers can do to contain the strength of the euro against the US dollar. The gain of around 18% for EUR/USD since the start of the year is making life hard for exporters, already faced with tariffs. The feeling among analysts seems to be that decisions taken in Washington are a more important factor than anything the European Central Bank can do.
Speaking of America, with the markets closed for Independence Day it’s an opportunity to look at the bigger picture. A president puts in a series of startling measures in a time already of economic change and Middle Eastern conflict. This wrecks global trade agreements, causes huge losses in the markets and sinks the dollar. Nope, not Trump, it’s President Nixon in 1973. But the first half of 2025 has been the worst for the dollar since ‘Nixon Power’ killed off the Bretton Woods Agreement in 1973 and put the world economy in a tailspin.
In practice, the data does not suggest imminent US economic Armageddon. Non-Farm Payrolls were surprisingly buoyant yesterday and US unemployment fell, with government employment rising in particular – so much for DOGE’s cost-cutting efforts.
ISM Services PMI – a reliable measure of business optimism – also moved more positively as the Middle East conflict failed to disrupt supply chains and US exports increased.
Back in the UK the government is celebrating a year in government or, more likely, relieved at getting a very difficult first year out of the way.
There was some good news yesterday in time for the summer getaway. Ryanair is increasing the size of bags you can take on a flight free of charge by 20%, though it is still smaller, at 40x30x20cm, than Easyjet’s 40x36x20cm.
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