Market Commentary 21st July 2025 – from Naigil Johnson

UK inflation rose to 3.6% in June 2025, the highest since January 2024 and up from 3.4% in May and above expectations. The increase was mainly driven by transport prices, which jumped 1.7%, largely due to higher fuel costs. The Retail Price Index (RPI) in the UK was also above market estimates as data suggested RPI had advanced 4.4% year-on-year in June 2025, above the previous month’s 4.3% increase.

The UK unemployment rate rose to 4.7% in the three months to May 2025, up from 4.6% in the three months to April and above expectations. This marked the highest level in unemployment since the three months ending in July 2021. The figures appeared to add further pressure in the UK labour market, as the governor of the Bank of England had warned that the Bank is prepared to make larger interest rate cuts if the job market is slowing.

Europe and US trade talks remained uncertain as the European Union accused the US of stalling trade talks and warned of possible countermeasures if a deal is not reached. President Trump however, said he was open to negotiations and noted that EU officials would soon visit the US for trade discussions, which appeared to improve market sentiment.

Germany’s ZEW Economic Sentiment Index rose for a third consecutive month to 52.7 in July 2025. This was the highest level since February 2022 and up from 47.5 in June. It seemed that despite the ongoing global trade uncertainty, nearly two-thirds of experts anticipated an improving German economy.

Germany’s producer prices fell 1.3% year-on-year in June 2025, after a 1.2% drop in May and in line with forecasts. This was the fourth consecutive monthly decline and the steepest since September 2024, mainly due to a 6.4% drop in energy costs.

US core inflation (which excludes food and energy) edged up to 2.9% in June 2025 from 2.8%, slightly below the 3% forecast. Overall, the annual inflation rose for the second month in a row to 2.7% in June 2025, the highest since February 2025, up from 2.4% in May and matching expectations. The month-over-month retail sales in the US increased 0.6% in June 2025. This was following the declines in the previous two months and above market expectations of a 0.1% gain.

The University of Michigan US consumer sentiment rose to 61.8 in July 2025, the highest level in five months, up from 60.7 in June and above the forecast of 61.5, according to preliminary estimates. The uptick in consumer sentiment appeared to suggest that consumers feel the risk of the worst-case tariff scenarios seen earlier in the year may have eased.

China’s trade surplus widened to $114.77 billion in June 2025, up from $98.94 billion a year earlier and above the expected $109 billion. Exports had outpaced imports and this was supported by a temporary easing of tariff pressures ahead of the August deadline. In contrast, Japan’s trade surplus narrowed to ¥153.1 billion, down from ¥221.3 billion a year earlier and significantly below the expected ¥353.9 billion, suggesting dampened demand due to US tariff pressure.

China’s economy grew 5.2% year-on-year in Q2 2025, down from 5.4% in the previous two quarters and the slowest since Q3 2024. In comparison, the economic data in Japan were more positive as Japan’s annual inflation eased to 3.3% in June 2025, marking the lowest level since last November and down from 3.5% in May.

GBP / EUR – Current 1.1540 Previous 1.1542

The Pound continued its struggle against the Dollar last week, falling by 0.57%. Against the Euro, the Pound moved largely sideways, slightly falling by 0.02%. The continued concerns regarding the risks to the UK public finances appeared to weigh heavily on the price of Sterling.