May 13, 2025

“The dollar gained more than 1.5% against the likes of EUR, CHF, and JPY yesterday as optimism surged about the potential for a less destructive trade war than most were expecting. Today is all about US inflation.”

Sam Cornford – Head of Trading

USD

The dollar has managed to hold on to the bulk of its gains following the US-China trade de-escalation over the weekend. The Trump administration has been making a concerted effort to regain the lost confidence that sent shockwaves through financial markets last month, with the president seemingly handing over the reins on trade to a more cool-headed Bessent. Sentiment has since improved, and markets are more comfortable with holding the dollar again. The Trump 2.0 dynamic in FX remains, however, where the dollar has traded as a risk-sensitive currency rather than a safe haven.

The main event today is the April CPI inflation report. Markets have wiped out a couple of cuts from swap pricing recently, with only two more now expected before the end of the year as recession risks have receded somewhat since the many tariff delays. The Fed has consistently sounded more worried about the inflationary impacts from tariffs than a drop off in employment. The consensus is for a 2.4% print, though eyes will likely be on an expected 0.3% month-on-month core inflation figure – a pace too quick for the Fed’s liking.

GBP

Sterling has brushed off a softer-than-expected jobs market report this morning. Ex. bonus wage growth made some modest progress in shrinking from 5.9% to 5.6% and the economy was said to have shed 33K jobs, though last month’s 78K job losses was revised down to 47K. It is enough to keep the Bank of England on a downward rate path, but it is unlikely to hurry them along just yet. BRC data this morning also suggested that retail sales grew a huge 6.8% year-over-year in April, fuelled by – as always – the hot weather. The key takeaway here is that the US uncertainty did not seem to be an obstacle to consumer spending.

EUR

EUR/USD dropped briefly below the 1.11 mark for the first time in over a month last night, as it continues a dip driven by positive developments on the trade story. The data point on offer today is the ZEW sentiment figures for Germany and the Eurozone, which are assumed to improve after a ‘liberation day’ crash in April. The euro remains primarily a proxy for tariff anxiety, although it has regained some relationship with rate differentials in the last week or so.

Markets

The S&P 500 and the Nasdaq jumped 3.3% and 4.0% respectively yesterday, thanks to the better-than-expected outcome from the US-China talks over the weekend. Both are now down only 0.6% on a year-to-date basis, after having fallen nearly 18% at one point last month. European stocks grinded higher too, with the Stoxx 50 up 1.6%.

Main Economic Events (All Times CET)

8:00am: UK Wage Growth
11:00am: Eurozone ZEW Sentiment
2:30pm: US CPI

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