8 March 2025
by Tony Redondo
Currency Exchange Rates Update
The Trump administration’s Hokey Cokey ‘Tariffs on, tariffs off’ decisions are creating ever more uncertainty and taking their toll on the financial markets.
It’s far too early to even suggest the US dollar’s status as a safe-haven asset and reserve currency is under serious threat but the Dollar has had a torrid time of late, losing nearly 2.5% against the Pound and over 4% against the Euro in the last week.
The Dollar index has now fallen to its lowest level since November 2024.
Last week, the Pound lost 1.7% of value against the Euro to hit its lowest level since January but had a better time of it against the Canadian Dollar, gaining over 2% and over 1% against the Australian Dollar.
What’s in the news?
UK
The highly respected IFS (Institute for Fiscal Studies) warned that Chancellor Rachel Reeves may be forced into announcing fresh tax rises and/or a new wave of austerity measures at the Spring Spending Review due on 26 March due to the state of the UKs public finances.
A survey of 300 mortgage brokers by Butterfield Mortgages showed 69% believe the BoE (Bank of England) base rate will be higher than the current level of 4.5% by the start of 2026 with over 28% of brokers believing the base rate will sit at 5.25% by the beginning of next year.
The latest City AM Freshwater Strategy poll shows 18% of adults in the UK could not pay an unexpected £500 bill, categorising them as in “high financial stress” as economic woes deepen in the UK. Another 35% said their finances were troubled or impacted and 33% said they were “just about managing”. Over half of respondents to the poll expect the economic conditions in the UK to worsen in the next year.
Not so good news
The BCC (British Chambers of Commerce) slashed its forecast for the UK economy due to the tax and trade “double whammy” afflicting UK businesses. The business group now expects the UK economy to grow by just 0.9% in 2025, down from the 1.3% growth forecast for the UK economy at the turn of the year. The BCC also revised down its 2025 business investment estimates from 0.9% to 0.6% amid rising cost pressures.
The closely watched S&P Composite PMI (Purchasing Managers’ Index) employment gauge sank to its lowest level since November 2020 and, excluding the pandemic, a post-financial trough.
The S&P Global UK Services PMI shows firms are experiencing the most significant job cuts since November 2020 with 24% of firms reducing their workforce in February. Employment in the sector has declined for five consecutive months, the longest stretch since 2011, excluding the pandemic.
The S&P Global UK Construction PMI dropped to a five-year low in its fastest downturn since May 2020.
The S&P Global UK Manufacturing PMI showed the downturn in the sector has deepened to the lowest level in 14 months with lower demand and weak confidence plaguing the industry.
CBI president Rupert Soames said the government’s proposed reforms to employment law would be “highly damaging” to business investment in the UK.
The latest ASI (Adam Smith Institute) Business Confidence Survey reveals over 77% of business leaders in the UK have “low” or “very low” confidence in the current economic climate.
Huw Pill, chief economist at the Bank of England told MPs at the Treasury Select Committee last Wednesday that the BoE is unlikely to implement rapid interest rate cuts due to ongoing inflation concerns.
The CBI (Confederation of British Industry) reported a significant decline in UK private sector activity. All sectors of the UK economy reported falling business volumes with firms anticipating further declines in the coming months.
USA
The US economy created 151,000 jobs in February, falling short of the 170,000 expected as concerns deepen about the impact of President Donald Trump aggressive trade policy on US economic growth.
The broad S&P 500 stock market index in New York posted its worst week since last September as the Hokey Cokey on US trade policy unnerved investors. Similarly, the tech-based NASDAQ index is down more than 10% from its recent peak.
Treasury Secretary Scott Bessent acknowledged that the US economy could be starting “roll a bit” but felt this was due to a transition from the policies of the previous administration. Bessent said any tariffs implemented would be a “one-time price adjustment” and not spark lasting inflation.
The EU
The ECB (European Central Bank) cut rates again last week to 2.5%, its sixth cut in as many meetings but in a change of language, said policy is becoming ‘meaningfully less restrictive’ in a sign that this could be it for further cuts for the time being.
The latest euro zone inflation data showed inflation in the region eased to 2.4% in February, down from January’s figure but slightly higher than expected.
Germany’s coalition partners agreed to bypass the long-standing debt rules by announcing their intention to borrow €900 billion to be spent on two funds covering defence and infrastructure and sent the benchmark German 10-year bond yield surging a historic 42 basis points last week, while the euro’s 4% rally against the dollar marks one of its strongest gains on record.
Others
China announced a growth target of about 5% for 2025 marking the first time in more than a decade Beijing has set the same goal for three straight years. At the same time, Trump’s latest tariffs on China gave President Xi a fresh push to overhaul a longstanding investment-led growth model in favor of one more centred around its 1.4 billion domestic consumers.
Quote
Groucho Marx, “I refuse to join any club that would have me as a member”.
