The dollar was on the backfoot yesterday losing almost another cent to euro and breaching $1.16 for a time, the highest the single currency has gotten since late 2021. The dollar was once again undermined by soft inflation data, this time the producer price index which rose by 0.1% in May adding to the data suggesting the Fed might have room to cut rates earlier than expected. However, Israel’s strikes against Iran overnight has sent investors into safe assets as they fear a wider longer conflict in the region. That’s benefited the dollar which has gained overnight and is back to $1.1550 to the single currency now. The euro did make sustained gains on sterling, getting up to 85.2p now, about a penny higher than the start of the week. Sterling made a slight gain on the dollar yesterday but lost most of the gains overnight and is back trading at $1.3550. Oil is also trading higher after the attacks, with a barrel of brent crude up c. 5% to $73.
Yesterday’s Events
Further signs of softer inflation in the US, in the near term at least, sent bonds higher. US 10-year yields were down another 6bps to 4.36%, and down about 15bps for the week. Bonds gained globally generally as markets foresee potential for further easing in monetary policy globally, with soft GDP data seeing UK 10-year yields down 8bps to 4.47% and German 10-year yields down 6bps to 2.47%. Sentiment toward equities was less positive with a fairly mixed session for indices globally with European indices posting losses but with the S&P eked out a daily gain of 0.4% supported by some positive company results, but the rapidly escalating tensions in the Middle East is likely to send equities lower today.
US core PPI inflation increased by 0.1% in May over April, less than expected. This follows Wednesday’s CPI data which was also on the weaker side. It appears the changing US trade policy means the impact of tariffs has yet to be felt in input costs leading to a fairly soft inflationary environment for the moment. It should however be noted that there was widespread inventory building ahead of tariffs which may be running down currently so we could see price pressures emerge in the second half of the year once new stock has to be bought. For the moment at least, the inflation environment in the US appears muted.
There was a plethora of ECB speakers yesterday but the general message was that the ECB was close to the end of its easing cycle. Executive board member Schnabel said that ECB monetary policy was ‘in a good place’ as inflation in 2027 would be ‘right at target’ and growth outlook is ‘broadly stable, despite the trade conflict’ and financing conditions are ‘no longer restrictive’. Separately, Governing Council member Simkus said rate reductions should be paused given ‘uncertainty over US tariff policy’ while Bank of France president Villeroy indicated he had ‘no fixed position’ about what to do next. Vice President Luis de Guindos did say that the ECB’s concerns had now shifted from high inflation to slow growth – indicating perhaps more willingness to cut rates a little further.
The Day Ahead
Looking to the day ahead, we get Euro Area industrial production and University of Michigan sentiment in the US.
Today's Talking Points 13.06.2025
Market Commentary
The dollar was on the backfoot yesterday losing almost another cent to euro and breaching $1.16 for a time, the highest the single currency has gotten since late 2021. The dollar was once again undermined by soft inflation data, this time the producer price index which rose by 0.1% in May adding to the data suggesting the Fed might have room to cut rates earlier than expected. However, Israel’s strikes against Iran overnight has sent investors into safe assets as they fear a wider longer conflict in the region. That’s benefited the dollar which has gained overnight and is back to $1.1550 to the single currency now. The euro did make sustained gains on sterling, getting up to 85.2p now, about a penny higher than the start of the week. Sterling made a slight gain on the dollar yesterday but lost most of the gains overnight and is back trading at $1.3550. Oil is also trading higher after the attacks, with a barrel of brent crude up c. 5% to $73.
Yesterday’s Events
Further signs of softer inflation in the US, in the near term at least, sent bonds higher. US 10-year yields were down another 6bps to 4.36%, and down about 15bps for the week. Bonds gained globally generally as markets foresee potential for further easing in monetary policy globally, with soft GDP data seeing UK 10-year yields down 8bps to 4.47% and German 10-year yields down 6bps to 2.47%. Sentiment toward equities was less positive with a fairly mixed session for indices globally with European indices posting losses but with the S&P eked out a daily gain of 0.4% supported by some positive company results, but the rapidly escalating tensions in the Middle East is likely to send equities lower today.
US core PPI inflation increased by 0.1% in May over April, less than expected. This follows Wednesday’s CPI data which was also on the weaker side. It appears the changing US trade policy means the impact of tariffs has yet to be felt in input costs leading to a fairly soft inflationary environment for the moment. It should however be noted that there was widespread inventory building ahead of tariffs which may be running down currently so we could see price pressures emerge in the second half of the year once new stock has to be bought. For the moment at least, the inflation environment in the US appears muted.
There was a plethora of ECB speakers yesterday but the general message was that the ECB was close to the end of its easing cycle. Executive board member Schnabel said that ECB monetary policy was ‘in a good place’ as inflation in 2027 would be ‘right at target’ and growth outlook is ‘broadly stable, despite the trade conflict’ and financing conditions are ‘no longer restrictive’. Separately, Governing Council member Simkus said rate reductions should be paused given ‘uncertainty over US tariff policy’ while Bank of France president Villeroy indicated he had ‘no fixed position’ about what to do next. Vice President Luis de Guindos did say that the ECB’s concerns had now shifted from high inflation to slow growth – indicating perhaps more willingness to cut rates a little further.
The Day Ahead
Looking to the day ahead, we get Euro Area industrial production and University of Michigan sentiment in the US.
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