February 11, 2025

“The inundation of Trump headlines continues to keep the likes of GBP and EUR subdued again today, with the pound also suffering by an increasingly dovish outlook from the Bank of England. Today, all eyes are on Washington, where we will get Powell’s testimony to congress and potentially some new executive orders.”

Tim Hallinan – Trading Director

USD

The dollar remains well supported by the torrent of tariff headlines being delivered by Washington. Trump signed off on the 25% steel and aluminium tariffs last night, and the EU has been the first to promise countermeasures this morning. Markets are also waiting on an executive order with details on reciprocal tariffs, where the US would match any tariffs placed on its own exports by other countries. There are a few things to look out for today. First is an NFIB small business optimism print, where economists tend to like the hiring plan subindex for its predictive power on job gains. The main event is then Fed Chair Powell’s semi-annual testimony to Congress, where he will be answering a barrage of questions from lawmakers on monetary policy. Most expect him to stick to the script from the January rate decision in saying that he is in no rush to cut rates and the US economy is looking solid – that would mean business as usual for the strong dollar. And as always, the market will be watching Truth Social and the White House for any developments in the tariff story.

GBP

Sterling has extended its losses this morning, after an FT interview with the Bank of England’s newest dove, Catherine Mann, painted a bleak picture of the cyclical outlook for the UK economy. Investors were keen to hear why she did a full 180 at last week’s meeting – remember that she has consistently voted against cutting rates at all in the past – and it turns out that she wanted to ‘cut through the noise’ and send a strong message that easier financial conditions were now needed because of the risk of a ‘non-linear’ downward adjustment in employment. She argued that British companies have now lost their pricing power as a soft consumer struggles with the current trend in job losses. These weak labour market conditions have been driven in part by the rise in employers’ NI taxes. The market is now leaning towards another three rate cuts this year, meaning the BoE’s 2025 easing profile is now looking more similar to the ECB’s than the Fed’s, limiting the pound’s upside against the euro. Look out for a speech from Governor Bailey this afternoon.

EUR

With the steel and aluminium tariffs now dragging Europe into Trump’s tariff regime, we are finally beginning to get a look at how a US-EU trade war might play out this year. European Commission President Von der Leyen and German Chancellor Scholz have already promised retaliation. During the last Trump administration, the EU targeted the likes of bourbon whiskey and Harley-Davidson motorcycles, and politicians have been clear that they would not take it lying down this time either. Today, we have a relatively light data calendar, although there is a speech from the ECB’s Schnabel. The focus for FX is going to be on tariffs and the Fed.

Markets

Unlike FX, the equity markets have been unfazed by the rising trade tensions this week, with the major indexes rising across the US, Europe, and Japan yesterday. The metals market, meanwhile, has become a flashpoint since Trump announced 25% tariffs on steel and aluminium, with traders rushing to buy other metals ahead of further announcements. The premium for New York copper futures versus the London price has widened to over $800 per tonne – the highest since 2020.

Main Economic Events (All Times CET)

8:00am: Norway GDP
12:00pm: US NFIB Small Business Optimism
4:00pm: Fed Chair Powell begins Congress testimony

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