Morning Report
May 21, 2025
“Some strong inflation figures and a softer dollar lifted GBPUSD to its highest since early 2022 this morning. The focus over the next few days will be on the US tax bill and tomorrow’s PMI data.”
Sam Cornford – Head of Trading
USD
The dollar’s downward momentum has accelerated over the last couple of days. There is no one obvious catalyst for the 1.6% drop in the dollar index, but we can point to resurfacing trade fears as negotiations stall, and the renewed attention on ballooning US debt amid the Moody’s downgrade and Trump’s struggle to push through his deficit-expanding tax bill. We are around the halfway mark on the 90-day delay to the April 2nd ‘liberation day’ tariffs, and so far the US has only managed to pick the low hanging fruit – the UK – while there is little news on progress with the likes of Japan and the EU. The truces and the optimism that drove the partial dollar rebound are fading quickly. There is no major data until tomorrow’s PMIs, but the market will be looking out for any headlines from Treasury Secretary Bessent’s meetings at the G7 this week.
GBP
Sterling hit a three-year high this morning, thanks to both a broadly weaker dollar and a hotter-than-expected CPI print for April. Headline inflation shot up from 2.6% to 3.3%, and the Bank of England’s measure of focus nowadays – services inflation – printed much higher than the 4.8% estimate, at 5.4%. Of course, it was widely anticipated that annual price resets would cause a surge, particularly from the likes of energy and water, but the surge was more than expected. That will validate Pill’s comments yesterday that the quarterly pace of rate cuts is too rapid given the inflation outlook. The market is now only fully pricing one more rate cut this year. That said, it was skewed by the outsized impact of spikes in airfares and road tax, so many on the MPC might look through today’s figure.
EUR
Domestic developments have been few and far between for the euro, and it is down to the dollar that EURUSD has gained 2.4% since last Monday’s trough to trade in the 1.13s again. Consumer confidence improved slightly yesterday, but not enough to make any material difference to the outlook. There are a couple of ECB speakers today, and tomorrow’s PMIs are the main event for the week. The market is still betting on another couple of rate cuts before the end of the year.
Markets
The general risk-off mood took equities mildly lower yesterday, while the likes of gold are heading upwards again. The S&P 500 and the Nasdaq both shrunk 0.4% and the European indexes lost their positive momentum.
Main Economic Events (All Times CET)
8:00am: UK CPI
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