Morning Report
March 26, 2025
“The Spring Statement will be critical for sterling today, after a softer-than-expected inflation report put it on the backfoot earlier this morning. Meanwhile, the overarching concern for markets is the content of the Trump administration’s tariff announcements next week.”
Tim Hallinan – Trading Director
USD
The dollar drifted sideways yesterday as markets weighed up the impacts of a potentially more flexible tariff regime, a Black Sea ceasefire with Russia and Ukraine, and a three-year low in consumer confidence. Without news of agreements or delays over the next few days, the dollar is likely to trade on the stronger side into the April 2nd deadline for reciprocal tariffs. Yesterday’s consumer confidence figure fell to a four-year low and underperformed the 94.0 estimate at 92.9. That points to lower growth in consumer spending, but the growing question is whether we will actually see it – this type of signal has been squeezed dry as a source of dollar weakness for now. Durable goods orders is the data point on the calendar today, and tends to be interpreted as an indicator for capex. We also get some speeches from Kashkari and Musalem at the Fed.
GBP
Sterling is trading 0.4% softer after this morning’s softer-than-expected CPI data. Falling clothing prices was the main driver behind a drop from 3.0% to 2.8%, prompting markets to raise their bets on two further cuts this year to 90%. The news is only good at the margin, however, and the consensus is still that it will rise well above 3% later in the year as rising energy prices, tax hikes, and extra fiscal spending push prices higher. Services inflation – the BoE’s preferred barometer of the underlying trend – held at 5.0%. Today’s Spring Statement will generate the biggest headlines of the week. It is not a full budget, but the gilt markets are scarred by the ill-fated mini-budget in 2022 and have tended to be twitchy – brief selloffs have hurt the pound on several occasions since October. Reeves is set to tell parliament that ‘our task is to secure Britain’s future in a world that is changing before our eyes,’ as she seeks to soften the impact of a £5bn welfare cut and lower departmental spending to restore her fiscal headroom.
EUR
The euro has anchored itself to the 1.08 mark over the last day or two as traders look ahead to the US’ tariff wave next week. News of a Russia-Ukraine ceasefire in the Black Sea does not seem to have encouraged traders to push the euro higher in this context, and neither has the increasing caution seeping into ECB policymakers’ rhetoric. Kazimir, in agreement with the likes of Holzmann and Schnabel, suggested yesterday that rates are already at a neutral level.
Markets
Stocks saw a broad gain as softer tariff rhetoric from the Trump administration and a Black Sea ceasefire for Russia and Ukraine added fuel to the rebound in US equities. European futures are pointing to a positive open this morning.
Main Economic Events (All Times CET)
7:00am: UK CPI
12:00pm: UK Chancellor’s Spring Statement
1:30pm: US Durable Goods Orders
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