Given the current geopolitical and economic landscape, we have observed a highly volatile market in recent weeks. During Donald Trump’s presidency, the sheer volume of information often made market movements difficult to predict. This week, with key data releases from the UK and US and speeches by Bank of England Governor Andrew Bailey and Federal Reserve Chair Jerome Powell, the continuation of recent trends and further volatility was expected.
The week’s events began in earnest on Tuesday with speeches from both Bailey and Powell. Andrew Bailey issued a cautionary message on the rollback of financial market regulations, referencing the 2008 financial crisis and the lessons it taught. In response, the British pound edged slightly lower, though market impact remained minimal.
Later that day, Jerome Powell testified before the Senate Banking Committee. He indicated no urgency to further reduce interest rates. Combined with the next day’s Consumer Price Index (CPI) readings—showing a year-over-year increase to 3% from the previous 2.9%—expectations for additional interest rate cuts this year were reduced to just one, likely in December.
Thursday’s GDP reading was a key focus for traders and analysts following the Bank of England’s decision to downgrade the UK’s growth outlook last week. Initially forecasted at 0.1%, many revised their expectations to -0.1% in light of the BoE’s forecast. Therefore, the final figure of 0.4% month-over-month came as a positive surprise. While the numbers are still weak overall, this unexpected upswing was enough to drive significant gains for the pound against the US dollar.
Later that evening, President Trump announced reciprocal tariffs for countries charging VAT on US goods. The announcement was largely dismissed as an empty threat and did not elicit a strong market response. The pound strengthened further against the US dollar.
On Friday, attention turned to US retail sales figures. With the pound steadily gaining throughout the day, the retail sales data had the potential to be a market flashpoint. Both core and overall retail sales figures came in negative, leading to further, albeit modest, gains for the pound against the dollar.
Looking ahead to next week, the calendar is relatively lighter, with the UK’s Consumer Price Index and Purchasing Managers’ Index (PMI) figures on Friday being the main highlights. However, given the current global climate, another highly volatile week is certainly possible.
