March 28, 2025

“With next week’s tariff announcements looming, markets get to look at some inflation data from the eurozone and the US today.”

Tim Hallinan – Trading Director

USD

With the market somewhat calm even as Wednesday’s ‘Liberation Day’ tariff announcements approach, the main event today is core PCE inflation. CPI inflation tends to make the headlines because it comes first, but the Fed’s 2% target actually applies to PCE inflation. And within the PCE measure, officials prefer to look at the ‘core’ variant, which excludes the volatile components of energy and inflation. The consensus is for a 2.7% year-on-year print and for 0.3% on a month-on-month basis, which broadly backs up the Fed’s cautious stance. Personal spending data will also be key for those looking out for a weaker consumer. Next week could be dicey, with Trump’s flagship reciprocal tariff regime set to be laid out on Wednesday and a non-farm payrolls print on Friday. The market appears to be pricing in relatively low risk that tariffs are severe or long-lasting, meaning volatility could be sizeable if an aggressive approach is taken.

GBP

Reeves was probably quite pleased with the market’s reaction yesterday. After a soft inflation print, some budget-related volatility, and some US tariff threats initially took sterling to a two-week low against the dollar, a sharp rebound pushed it through 1.20 versus the euro and briefly to a one-week high on GBP/USD. For now, at least, the gilt market appears to be content with the Treasury’s borrowing plans for the next fiscal year. And potentially investors are quite pleased that the OBR now believes in Labour’s efforts to boost long-term growth, tacking on an extra 0.2% per year by the end of the decade. The main event this morning is a retail sales figure for February, which markets expect at 0.6%.

EUR

The first few country inflation prints are the main event for the euro this morning, ahead of the bloc-wide figure due on Tuesday. French inflation is expected to rise a touch to 1.1%, while the Spanish figure is expected to drop from 2.9% to 2.5%. ECB policy decisions are getting more interesting now that rate cuts are likely nearing their end – with each move lower it becomes less of a given that a cut is the natural move. The data over the next few days will be a key input to the April decision, and some upside surprises could put the central bank on hold for the first time since last summer.

Markets

Financial firms led a shallow decline in European stocks yesterday, alongside some drops in tariff-affected automakers like Stellantis and Mercedes-Benz. US equities spent most of the day in the green, meanwhile, with the likes of Dollar Tree and Tesla outweighing a big drop in General Motors.

Main Economic Events (All Times CET)

8:00am: UK Retail Sales & Final Q4 GDP
8:45am: French CPI Inflation
9:00am: Spanish CPI Inflation
9:55am: German Unemployment Change
1:30pm: Canadian GDP
1:30pm: US Core PCE Inflation

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