May 23, 2025

“The May PMIs contained quite a few warning signs – in the US, it was about an incoming wave of inflation, and in Europe, it was concerns about general weakness in the consumer. UK retail sales have pushed sterling to a fresh three-year high this morning.”

Sam Cornford – Head of Trading

USD

The dollar has flattened off towards the end of the week after a bruising few days for both US sentiment and the Treasury market. The relative outperformance of the US PMIs had a hand in halting the greenback’s losses yesterday, with the 52.1 figure beating out the consensus of 50.3 while the eurozone fell back into contraction. The report cited an improvement in confidence since the tariff delays, but it also warned that ‘supply chain delays are now more prevalent than at any time since the pandemic led to widespread shortages in 2022’ and that prices charged are rising at the sharpest rate since that time. We could start to see this filter through into the inflation data next month. The other big news is that the One Big Beautiful Bill Act passed through the House of Representatives yesterday and is now on its way to the Senate, although the markets have already adjusted the dollar lower based on the unwillingness to tackle the ballooning deficit. The G7 meetings produced no material news on FX after all, and today we get a couple of speeches from Fed policymakers and some home sales data.

GBP

Sterling is storming higher this morning after a solid retail sales print for April. Retail spending grew 1.2% month-on-month, and once again for the UK it is a weather-driven surprise, with an extremely sunny April driving up footfall. That aside, it is still a pleasing sign for markets and a good show of resiliency for the British consumer at a time where US policy chaos is dominating the headlines. Yesterday’s PMIs were slightly better than expected but still quite disappointing at 49.4.

EUR

The April PMIs gave the ECB another reason to cut once again at the next decision in early June. The composite index fell below 50 for the first time this year as services shrank, and unfortunately it was a story of weak domestic demand rather than US trade policy – the report specifically warned ‘do not blame US tariffs for this one’. That will help to get the more hawkish policymakers onside with another cut, and might convince the others that more accommodative policy will be necessary. Today brings the ECB’s negotiated wage tracker, which last pointed to 3.1% wage growth this year – the euro might struggle if it falls below this.

Markets

Investors’ nerves calmed yesterday and the equity market switched to consolidation, with none of the major indexes in the US or Europe moving meaningfully.

Main Economic Events (All Times CET)

8:00am: UK Retail Sales
11:00am: Eurozone Negotiated Wages
2:30pm: Canadian Retail Sales
4:00pm: US New Home Sales

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