Morning Report
May 27, 2025
“The dollar is beginning to recover this morning after sinking on the back of fresh tariff threats and fiscal worries on Friday. The focus today is on US consumer confidence and trade talks.”
Tim Hallinan – Trading Director
USD
The dollar index sank to a one-month low on Friday as markets got to grips with a) a likely continuation of the US’ huge fiscal deficits, and b) Trump’s latest tariff threats on the EU. While rates have come down slightly in the past few days, the missed opportunity to reduce the sky-high deficits with the One Big Beautiful Bill Act has put the spotlight over the ever-growing debt pile and interest costs. Trump’s threat for 50% tariffs on the EU and the subsequent delay (until 9th July) handed investors another reason to steer clear of the dollar and opt for alternatives – most of the G10 gained around 1% versus the dollar on Friday. With each unpredictable policy move, commentary around the dollar losing its dominance seems to grow louder, and ECB President Lagarde sees an opportunity for the euro to take its place if certain conditions are met.
Today brings the consumer confidence print for May. The focus for the rest of the week is then on trade talks, core PCE inflation, the Fed meeting minutes, and a second estimate for Q1 GDP.
GBP
Sterling hit another three-year high yesterday and very nearly touched the 1.36 mark versus the dollar. It is trading more than 12% higher than its weakest level in the weeks leading up to Trump’s inauguration. This is mostly a product of the dollar weakness over the last four months, but a noticeable portion of the recent gains have been sterling-driven, as inflation has picked up, growth surprised to the upside in Q1, and the labour market hasn’t fallen apart quite as badly as some were expecting after the October budget. The data calendar is relatively light this week, although many will be watching rising UK yields as a potential downside risk for sterling. The DMO has said it would shift its issuance towards the shorter end as long-term gilt demand declines.
EUR
Could we be heading towards a ‘global euro moment’, as Lagarde suggested yesterday? There are several reasons why the dollar has been the preferred currency for trade, FX transactions, and reserves. The most obvious one is that the US is a more cohesive entity with a singular, deeply liquid debt market, while the eurozone is fragmented and made up of dozens of issuers, all with their own political agendas and some more creditworthy than others. That is why, as per Lagarde, ‘the euro will not gain influence by default – it will have to earn it’, and presumably by ‘earn it’ she means common debt issuance and some closer economic and financial integration between member states. French inflation data is weighing on the euro this morning after it unexpectedly fell from 0.9% to 0.6%, and data from Germany and others come later in the week.
Markets
US stocks took a dive late in the session on Friday after Trump threatened 50% tariffs on the EU. Futures are pointing to a strong rebound across Europe and the US this morning, however, with those threats now delayed.
Main Economic Events (All Times CET)
8:45am: French CPI
4:00pm: US Consumer Confidence
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