Currency Market Digest: 24th April 2025

What happened last week?

UK government borrowing in March and the full fiscal year exceeded expectations, reaching £151.8bn—£14.6bn above forecasts—driven by inflation, benefit increases, and Trump’s tariffs, making it the third-highest on record. Despite higher income, debt remains elevated relative to the economy, with limited fiscal headroom at just £9.6bn. Economists warn of tighter fiscal policy and potential tax hikes in the autumn Budget. With economic growth weakening, the IMF cut the UK’s 2025 forecast from 1.6% to 1.1%, citing global trade tensions and inflation driven by energy and food prices.

While inflation is expected to ease to 2.5%, the Bank of England may delay interest rate cuts as prices slow. Analysts caution that tariffs could further hurt exports and growth, placing continued strain on public finances. Chancellor Rachel Reeves plans to meet US officials to address the impact, as the IMF now expects the UK to grow slower than major European economies.

UK inflation slowed to 3.2% in March, easing pressure on the Bank of England to raise rates. Falling petrol prices and weaker retail demand contributed. However, analysts warn Trump’s tariffs, global trade tensions, and rising wages could still drive future inflation. Economic uncertainty remains elevated.

The European Central Bank cut interest rates by 0.25 percentage points to 3.75%, the first reduction since 2022, amid easing inflation and weak eurozone growth. ECB President Christine Lagarde stressed caution, while analysts warned of persistent risks. Trump praised the move, linking it to his 10% tariff threats.

Donald Trump said there would be no EU trade deal unless he gets what he wants, during talks with Italian Prime Minister Giorgia Meloni. While praising Meloni, he criticized the EU’s trade stance and tariffs. Meloni showed openness to Trump’s approach, emphasizing the need for cooperation. Trump touted tariff income and warned Europe must meet defense spending targets. The EU criticized being sidelined in negotiations. Analysts noted Trump's preference for bilateral talks and pressure tactics. Meloni also backed US LNG imports and signaled Italy’s alignment with Washington over Beijing on key global issues.

The IMF cut global growth forecasts due to rising risks from Trump’s tariffs and global uncertainty, predicting 2.8% growth in 2025, down from 3.2%. The US is expected to grow 1.6%, while the eurozone lags at 0.8%. Chief economist Pierre-Olivier Gourinchas warned of persistent inflation, tighter financial conditions, and potential market shocks. He urged central banks to maintain focus on inflation despite weaker growth. The IMF also highlighted vulnerabilities in China’s economy and called for international cooperation to mitigate risks, warning global fragmentation could further slow recovery and financial stability.

Argentina’s President Javier Milei is pushing sweeping reforms—slashing spending, deregulating, and privatizing—to fight inflation and stabilize the economy. While inflation has eased, poverty has surged, triggering mass protests and growing opposition. Milei’s approval has dropped, but he remains defiant. The IMF backed his agenda with a $4.7bn loan, as Congress debates key reforms.

China warned it will retaliate against countries siding with the US in trade talks that undermine its interests. Amid rising tensions with Washington, Beijing condemned “unilateral bullying” and vowed reciprocal countermeasures. While open to dialogue, China resists pressure to concede. Trump’s tariffs on Chinese goods remain high, fueling disputes. Beijing promotes itself as a defender of trade rules but faces economic challenges. It urges fair negotiations, warning that global trade returning to “law of the jungle” would harm all nations.

South Korea’s acting president Han Duck-soo said the country won’t fight US tariffs, citing historic ties and support from Washington. Han stressed cooperation, discussed trade surplus issues with Trump, and expressed openness to talks on non-tariff barriers. While facing political challenges at home, Han signaled willingness to negotiate on security and economic matters, but denied plans to run for president, saying he hadn’t made a final decision.

Japan’s trade negotiator left Washington without a deal after talks with Trump on US tariffs. Despite no agreement, both sides plan further talks. Trump’s stance has spurred global concern, with Japan aiming to avoid more tariffs. Japan may face pressure on defense spending and military cost-sharing. Currency issues were not addressed but remain a key US interest.

What to watch out for this week?

All times are GMT

• All Day - Near Global National holiday for Easter Monday

• 05:00 - JPY BoG Core CPI (YoY)

• 13:45 - USD Manufacturing PMI (Apr)
• 13:45 - USD Services PMI (Apr)
• 14:00 - USD New Home Sales (Mar)
• 14:30 - USD Crude Oil Inventories

• 12:30 - USD Durable Goods Orders (MoM) (Mar)
• 12:30 - USD Initial Jobless Claims
• 14:00 - USD Existing Home Sales (Mar)

• All Day - AUD & NZD National Holiday for ANZAC Day
• 06:00 - GBP Core Retail Sales (MoM & YoY)