June 11, 2025

“Today is all about US inflation, and the market will primarily be interested in whether tariffs are starting to have a meaningful effect, after yesterday’s China trade talks produced little positive sentiment for the dollar.”

Tim Hallinan – Trading Director

USD

The US and China reached a ‘framework for implementation’ yesterday after two days of talks in London that should restart flows in rare earths and other restricted exports. But the market is not particularly excited, and the dollar has struggled to find new direction for now. There have been scant details, and it isn’t clear whether the new truce can last this time (Trump collapsed the old one with a Truth Social post accusing China of breaking it). While investors will be pleased that they are talking, there are still significant headwinds to a comprehensive deal, and for now the market sees the talks as papering over the cracks rather than making any major breakthroughs. In other news, Treasury Secretary Scott Bessent has reportedly become a frontrunner for the job as Fed Chair once Powell’s term is up. That could be a material downside risk for the dollar in the long run, as assumingly Trump would want him to meet his demand for a more dovish bias.

The key event today is the CPI inflation report for May. The widely held consensus seems to be that this will bring the first clear signs of tariff-driven prices rises, though we might be waiting until June and August for a material increase in goods prices. At the same time, dampened demand in sectors like airfares, restaurants, and hotels is expected to contain the jump to only 2.4% from 2.3%.

GBP

Yesterday’s weak jobs numbers saw sterling fall against all its major peers, and it is struggling again this morning. Today brings Reeves’ Spending Review, which essentially sees her lay out how the money laid out in the budget gets apportioned out between departments. While not material for FX in an of itself, directing the market’s focus toward the weak fiscal position tends to make the pound twitchy, and it might compound the negative momentum from yesterday.

EUR

The euro is clinging on to the 1.14 mark as markets wait for the major data catalysts this week. The news coming out of the eurozone has mostly revolved around ECB speakers, who have been patting themselves on the back and appear to be largely in agreement that policy is in a good place and that the war on inflation is over. Further cuts now are likely to come as a result of the desire to avoid inflation undershooting the target, or to protect the eurozone economy from any tariff-related slowdown. Lane and Cipollone speak today

Markets

Positive comments from Lutnick following yesterday’s trade talks lifted the S&P 500 by 0.5% before the end of the session, but futures are pointing to much of these gains being wiped out at the open as markets digest the lack of real detail.

Main Economic Events (All Times CET)

2:30pm: US CPI Inflation

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