May 14, 2025

“A weak inflation figure yesterday quickly wiped out the dollar’s trade-related rebound from earlier in the week. The market is not quite ready to put its trust back into US assets. Next up on the data calendar are UK GDP and US PPI tomorrow.”

Tim Hallinan – Trading Director

 

USD

The dollar’s attempted rebound was once again met with renewed selling pressure yesterday, following some softer-than-expected inflation data from April.  There were no conclusive takeaways on the likely impact of the tariff policy – it is too early for this to pass through meaningfully – but the market appeared to take it as a sign that it might be too soon to become eagerly optimistic about the US economy. The headline figure dropped from 2.4% to 2.3%, and the month-on-month core figure that many were watching landed at 0.2% versus the 0.3% consensus. The only materially relevant indication of Trump’s influence in the report was a drop off in airfares – his controversy has put off US-bound tourists in recent months. At the margin the softer picture means more space for Fed rate cuts, though the market is still pricing in only two moves for the entirety of 2025. There is a risk that this number starts ratcheting higher if the employment data deteriorates over the summer. There is no major data today, but there will be further headlines coming from Trump’s investment-focused trip to the Middle East. PPI inflation and retail sales tomorrow are the next events to watch.

GBP

Sterling is putting in a solid performance this week. It is now stronger against the dollar than before the US-China de-escalation on Monday, and GBPEUR is more than 1.2% higher than it was this time last week. The economic picture has improved in recent months, and it turns out that fears of spiralling job losses relating to employers’ taxes were greatly exaggerated – at least according to yesterday’s labour market data and the BoE’s Catherine Mann this morning. Tomorrow’s GDP report is also likely to confirm a solid 0.6% growth in the first quarter. That is a surprisingly good start, given that the BoE projection at the beginning of the year was for 0.75% growth for the entire year. Policymakers will not be counting their chickens, though, considering the headwinds ahead.

EUR

The euro is trying to break above the 1.12 mark this morning after briefly falling into the 1.10-1.11 range only two days ago. It remains purely dollar-driven right now, and so far it has been unable to keep up with the pound. Now that the market is less panicked about the US-China trade war, the euro’s safe haven appeal appears to have waned somewhat, and it was the likes of the Nordics and AUD that outperformed CHF, JPY, and EUR yesterday. The only data today involves some final revisions to April CPI, plus a couple of ECB speakers.

Markets

After a full round trip since ‘liberation day’ and everything else that has happened since Trump came into power, the S&P 500 crossed a threshold yesterday – it is now marginally positive on a year-to-date basis. It has recovered by more than 21% since its low on the 7^th April. The softer inflation data was the proximate cause for the optimism seen yesterday.

Main Economic Events (All Times CET)

3:30am: Australian Wage Price Index

 

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