Morning Report
March 25, 2025
“The dollar is strengthening again after the PMIs reinforced the gap in growth between the US and Europe. The focus today is on consumer confidence in the US, which the consensus estimate is putting at a four-year low.”
Sam Cornford – Head of Trading
USD
The US dollar found support from an improved economic activity picture for March and news that the Trump administration has watered down its April 2nd tariff plans, but it faces a considerably weak consumer confidence print today. Having dropped to 51.0 in February, the services PMI shot back up to 54.3 in March and soothed concerns about a weakening US economy, though a surprise sub-50 (i.e. contractionary) manufacturing print dulled the market’s optimism. Meanwhile the tariff story took another couple of turns, as Trump announced ‘secondary tariffs’ of 25% on the imports of countries who buy oil and gas from Venezuela. He also hinted, however, that he may give ‘a lot of countries’ breaks on his April 2nd tariffs and that they would not all be announced next Wednesday, aligning with articles from the WSJ and Bloomberg from earlier in the day. Any sign that tariffs would be watered down was previously an unambiguous dollar negative, but that has become much less clear now that the market has become more attentive to the impact on the US economy as well as its trading partners. Yesterday’s news seemed to support the boost to US optimism.
The market might struggle to feel anything but glum, however, if consumer confidence does fall from 98.3 to 94.0 to today as expected. That would be the worst since January 2021, and is perhaps unsurprising when economic policy changes by the day. What does this mean for the real economy, though? Powell has been keen to point out that sentiment data has been a poor indicator for growth in recent years, and we are still yet to see any concrete evidence in the hard data that the US economy is anything but robust.
GBP
While a rebound in the dollar has GBP/USD trading 0.8% weaker than its peak last week, sterling has performed well against the euro. Tomorrow will be the defining day for the pound this week, however. The consensus for the early morning CPI data is for another 3.0% headline print and a slightly softer 4.9% services figure. The lack of progress here has been widely expected by both the market and the BoE, and it underpins expectations for less than two fully priced rate cuts before the end of the year. Policymakers reckon that inflation will rise to 3.7% on a temporary basis this year, before falling back down to 2% only in 2027. The Chancellor’s Spring Statement follows in the afternoon, where the focus is going to be on the details of her spending cuts.
EUR
March has been filled with euphoria about a European economic renaissance fuelled by huge fiscal spending plans, but yesterday’s PMIs reminded investors just how far there is to go. The 50.4 composite index – meaning the economy narrowly avoided contraction – was actually a seven-month high, as depressing as that statistic is. But it was saved from being worse only by a jump in the manufacturing index, which to some extent will reflect tariff front-running. The data calendar is quiet day beyond a German business sentiment data, and the euro will be dependent on the headlines out of the US.
Markets
US equities continued their rebound yesterday as activity data impressed and tariff plans were watered down, with both the S&P 500 and the Nasdaq gaining around 2%. European markets had a quieter session and most indexes inched lower slightly.
Main Economic Events (All Times CET)
10:00am: German ifo Business Climate
3:00pm: US New Home Sales
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