May 16, 2025

“Despite a burst of volatility on Monday following the US-China trade de-escalation last weekend, the dollar is back to where it started earlier in the week. Some softer data put the greenback on the backfoot yesterday, and the focus is on sentiment this afternoon.”

Tim Hallinan – Trading Director

USD

The dollar is trading on the softer side again after yesterday’s relatively dovish string of data. The retail sales ‘control group’, which excludes the most volatile components of the index, shrank by -0.2% in April, well below expectations for a 0.3% gain. PPI inflation, meanwhile, printed at -0.5% month-on-month versus a consensus for 0.2%. There is no sense of complacency about inflation at the Fed, however, with Chair Powell emphasising yesterday that ‘we may be entering a period of more frequent, and potentially more persistent, supply shocks’. The market is still leaning towards just two cuts this year. Today, the main piece of data is the UoM consumer sentiment survey, which last time fell to its lowest levels since peak recession panic in 2022. A slight uplift is expected this morning, presumably thanks to Trump’s tariff pullbacks.

GBP

Sterling has gained nearly 1.5% since Monday’s trough and is making an attempt above the 1.33 handle this morning, on the back of dollar devaluation speculation, softer US inflation, and some positive data flow in the UK. While GBP/EUR has stalled in the past couple of days, we are still around the best levels since the April 2^nd market panic. There isn’t much on the data calendar to get the pound moving today, but there is plenty next week when we get CPI inflation and PMI data.

EUR

The euro has been glued close to the 1.12 level in the past few days. It took a short knock yesterday as Q1 growth was revised down slightly from 0.4% to 0.3%, though the focus is firmly on the impact of the incoming trade shock. The relationship between EUR/USD and short-term rate spreads has begun to restrengthen in recent weeks and monetary policy is playing a part again, but we are still highly sensitive to the trade headlines. The only data today is on the trade balance.

Markets

Equities have barely budged over the last couple of days, as investors step back and reassess the bounce so far. Some of the recent gains in the US might be linked to hopes that Trump’s market-friendly policies would soon start to appear, including a cut to banks’ capital requirements.

Main Economic Events (All Times CET)

1:50am: Japanese Q1 GDP
4:00pm: US UoM Consumer Sentiment

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