Morning Report
March 14, 2025
“Despite two sets of softened inflation data, the dollar is consolidating and recovering a portion of its losses from last week. The focus today is on consumer sentiment data, which has been hurt badly by the continuous change in US economic policy since Trump came back into power.”
Sam Cornford – Head of Trading
USD
The dollar rebounded broadly again yesterday amid another bout of tariff angst and a loss in momentum for European FX. PPI inflation yesterday was softer than expected as prices held steady month-on-month – something that would send the dollar lower in normal times – but the market is very much focused on the trade war as opposed to the macro data right now. The latest turn in that story came in the form of an angry Trump threat for 200% tariffs on EU alcoholic beverages, in retaliation to duties on US whiskey. Another positive for the dollar yesterday was some relief that the US would avoid a government shutdown, after Senate Democrats indicated they would support the Republican stopgap funding bill.
With excitement around fiscal stimulus in Europe having peaked, we will probably need another catalyst if the dollar is going to move back lower. The UoM consumer sentiment data today might be one – although Fed Chair Powell has played down the relevance of this type of reading, the market is looking for it to fall further after hitting its lowest since 2023 in February.
GBP
Sterling is unsurprisingly on the backfoot this morning after data showing a 0.1% contraction in the UK economy in January. While not ideal, though, it is unlikely to affect the Bank of England’s decision next week, where the market is still pricing in a 96% probability that policymakers stick to their once-per-quarter cutting pace and hold rates steady. This is a volatile figure that does not change the narrative. British economic activity has flatlined since the middle of 2024, and this is simply a continuation of that trend. Firms are facing high borrowing costs, structurally low productivity growth, and weak consumer demand – that is before considering the impact of the employers’ NI increase next month. There is hope for a rebound later in the year, but the worsened outlook means Reeves is likely to slash welfare spending at the fiscal event on 26th March.
EUR
The euro has weakened off at a steady pace across the second half of the week and is consolidating below the 1.09 handle. As we wait for German spending reforms to go through parliament and for negotiations to continue on Ukraine, EUR/USD has run out of reasons to keep moving higher for now. Meanwhile, Trump is making markets nervous by demonstrating his determination to escalate the brewing trade wars in the EU and Canada. There are only some final revisions to February inflation date due on today’s calendar, although the ECB’s Villeroy argued this morning that eurozone inflation will fall to 2% this year.
Markets
Stocks slipped again yesterday as tariff anxiety continued to roil markets, with the S&P 500 entering correction territory after slipping more than 10% form its January peak. The mood improved overnight, however, and futures are looking positive with the US likely to avoid a government shutdown.
Main Economic Events (All Times CET)
8:00am: UK GDP
3:00pm: US UoM Consumer Sentiment
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