June 12, 2025

“The dollar is struggling this week on a few fronts, with yesterday’s CPI much weaker than expected and the White House threatening to reimpose tariffs unilaterally. PPI is on the calendar today, ahead of the Fed decision next week.”

Sam Cornford – Head of Trading

USD

The dollar index took a steep dive overnight to a 7-week low, as a soft CPI print and the market’s dissatisfaction with US-China talks weighed on the greenback. The month-on-month core CPI figure was significantly weaker than the consensus at 0.1% (vs 0.3%) and challenged the Fed’s hawkish tariff stance that has left it on hold through the first half of the year. Markets had expected that the first signs of tariff pass-through in goods prices would deliver a relatively hot print, but instead goods inflation only picked up modestly and this was more than offset by the softness in services that hinted at consumer caution. The implied probability for a September cut is now more than 80%, and potentially there is significant room for further easing to be added if the inflation profile turns out to be weaker than policymakers had expected. At the same time, tariff concerns are resurfacing. While China agreed to ease restrictions on rare earth exports in exchange for US relaxation on the likes of jet engines and ethane, US tariffs on China are set to remain at 55%. And there are reports of the administration preparing to send out letters to 20+ countries unilaterally setting tariff levels.

The net result is that we are moving back toward post-‘liberation day’ levels. PPI inflation will also be watched closely today ahead of next Wednesday’s Fed decision, and eyes are on tariff news and rising tensions in the Middle East.

GBP

While a tumbling dollar has kept GBP/USD about flat on the week, the latest set of weaker data this morning has extended the pound’s losses against the euro to 1%. Most of the damage was done on Tuesday by the shocking number of job losses in May, but this morning’s GDP data for April also showed the UK economy shrinking by 0.3%. The move has been dampened by a general distrust in the ONS and the data given the recent volatility (the UK was somehow the fastest growing G7 economy in the first quarter), but it is nonetheless embarrassing for Reeves, who only yesterday promised to bolster growth during the Spending Review.

EUR

The euro is through 1.15 for the first time since April, as it once again benefits from dollar outflows. This week has been dominated by the largely hawkish commentary coming from the wide array of ECB speakers, but ultimately that has been drowned out by the US headlines. Nevertheless, investors will be keen to hear from the likes of Knot, Guindos, and Schnabel today.

Markets

Stocks ended yesterday in a sea of red as investors renewed their concerns about US tariffs and weakening growth, and futures suggest a similarly weak opening today. Oil has been a major gainer in recent days, as geopolitical tensions have risen in the Middle East.

Main Economic Events (All Times CET)

8:00am: UK GDP m/m
2:30pm: US PPI Inflation & Jobless Claims

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