8th May 2025

The Dollar continued to benefit from the Fed's wait and see update last night, with the DXY hitting its highest level of the week in early European trade.

The first major trade deal has been announced and it is between the US and the UK. More details are to follow, but Trump described it as "full and comprehensive", before adding that "many other" deals are in "serious stages of negotiation" and are "to follow." It is worth pointing out that the agreement between the US and the UK has nothing to do with reciprocal tariffs and the UK is a relatively small trading partner for the US.

Trump's war of words against the Fed Chair Powell ramped up again after yesterday's on hold verdict, with the President saying that "too late" Powell doesn't have a clue and is a fool, before reiterating that there is virtually no inflation.

Ahead of the weekend talks between the US and China in Geneva, Switzerland, Trump stated that he is unwilling to preemptively lower tariffs on China in order to unlock more substantive negotiations with Beijing on trade.

The Nikkei reported that the Japanese government is mulling the possibility of leveraging shipbuilding in tariff negotiations with the Trump admin, meanwhile the Ukraine central bank governor is said to be mulling the EUR not USD as its reference currency and Trump could rescind global chip curbs amid AI restrictions debate.

And, Bbg reported that the Chinese government has announced a range of policies to stabilize markets, boost tech innovation, and protect small businesses ahead of landmark trade talks with the US. The policies include across-the-board rate cuts that could pump over Rmb 2.0tln into the economy, and are seen as a bid to strengthen Beijing's hand in negotiations.

Overnight both the Riksbank and the Norges Bank left rates unchanged.

Next up is the Bank of England, who looks set to continue their rate cut a quarter pace and deliver their latest move today, a 25bps rate cut to 4.25%. A lot more easing is expected in 2025, so the MPC's reaction to those forecasts will be closely watched.

More tariff related front running lifted German IP in March, as it posted a 3% increase vs the 1% consensus forecast.

US data today includes Q1 non-farm productivity and unit labor costs, jobless claims, wholesale trade sales and the NY Fed Inflation Expectations reading. Keep an eye on the claims data after last week's spike higher.

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