The UK announced on Thursday that it had closed the first deal with the US since Trump’s trade war began. The deal included the tariffs on British steel imported to the US being reduced from 27.5% to 0, as well as the tariffs on cars falling from 27.5% to 10%. The US maintains its 10% blanket tariff on all UK goods imports.
This created a general sense of optimism around the willingness of the US to negotiate on tariffs, which saw much of the market rise on Friday. Germany’s Dax hit a fresh all-time high, becoming the first large European index to fully claw back losses from President Trump’s tariff threats. The rise also followed a phone call between Trump and Germany’s new chancellor, Friedrich Merz, where both agreed to sort out trade disputes quickly, and the upcoming US–China tariff meeting this weekend.
This milestone also taps into earlier excitement around Merz’s plan to borrow more and pump hundreds of billions of euros into Germany’s military and infrastructure. European markets have outpaced the US so far in 2025, buoyed by hopes for higher defense spending even as trade-war worries linger. German banks have been standout performers—Deutsche Bank is up 43% this year—while the S&P 500, though it’s bounced back since April’s “liberation day” tariffs, remains nearly 4% below its February peak.
Inflation eases up
The Bank of England’s latest decision on interest rates was more closely fought than many expected.
When it came to voting, the nine-member Monetary Policy Committee split 5 to 4 in favour of a modest 0.25% cut, taking the base rate from 4.5% down to 4.25%. Two members wanted a bigger 0.50% drop, believing that any fallout from global trade tensions might actually help tame inflation, while another two thought it best to leave rates where they were.
Andrew Bailey, governor of the Bank of England, said: “Inflationary pressures have continued to ease, so we’ve been able to cut rates again today. The past few weeks have shown how unpredictable the global economy can be… That’s why we need to stick to a gradual and careful approach to further rate cuts”.
The market now sees rates falling to around 3.5% by the end of this year – down from an estimate of over 4% at the start of the year. This change reflects the impact of lower inflation expectations and the fallout from Trump’s tariff policies.
The US also had their central bank meeting this week, but unlike the UK, the Federal Reserve decided with a unanimous vote to keep its benchmark rate steady at 4.25% – 4.5% for a third straight meeting. Officials voiced fresh worries that President Trump’s tariffs might spark another round of inflation while putting pressure on the job market. The Fed’s policymaking body acknowledged that “uncertainty about the economic outlook has increased,” and agreed that these trade tensions have raised the odds of both higher unemployment and higher prices.
Chair Jerome Powell stressed that, because trade policy remains so unpredictable, the Fed is in a “wait-and-see” mode—ready to adjust only once clearer data come in. He noted that the US economy is still “healthy,” with a “solid” labor market and inflation running “somewhat elevated,” but cautioned that the evolving tariff picture could force the Fed into some tricky balancing acts between its twin goals of strong employment and stable prices.
Crypto makes a comeback
In the world of cryptocurrencies, Bitcoin has jumped sharply over the past month, breaching the $100,000 mark for the first time since February as easing trade tensions gave risk appetite a boost. The Invesco CoinShares Global Blockchain ETF (BCHS), which offers exposure to companies that participate or have the potential to participate in the blockchain ecosystem, is recovering from its drawdown, gaining 24% over the last month:
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