On Friday evening, markets had a bit of a shock as Moody's lowered the US debt rating from Aaa to Aa1, highlighting a rapidly expanding budget deficit that shows no signs of shrinking.
*Daily move - against G10 rates at 7:00 am, 19.05.25
** Indicative rates - interbank rates at 7:00 am, 19.05.25
Following the Moody’s downgrade, US Equity futures and the dollar are starting the week weaker, as markets resume the “sell America” trade.
Pound moves are muted, despite EU and UK negotiators reaching a deal to strengthen their bilateral relationship ahead of a summit meeting today.
For the pound this week, focus will fall on inflation numbers due out on Wednesday. The numbers expected to show that prices increased in April. UK CPI is expected to rise to 3.3% from 2.6%, core to 3.6% from 3.4% and services are expected to pick up to 4.9%. All in all, the data will support the Bank of England’s (BoE) recent announcement of a gradual approach to cutting interest rates. We could well see the pound supported on these numbers. UK retail sales are also out on Friday.
Furthermore, this week the European Central Bank (ECB) will be releasing the minutes from its latest meeting and we will be looking for any hints on how much more dovish the members are following the US tariff announcements.
Also this week, we have Eurozone, US and UK PMI surveys, alongside Germany’s IFO survey. These will all help gauge the economic impact of US tariff announcements.
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