Dollar sinks

ÙS stocks and long bonds sold off again and the dollar fell sharply across the board yesterday, as investor confidence in US asset remains fragile to say the least following the chaos wrought by Trump’s trade policy. The dollar’s slide continued in overnight trading with EURUSD getting up close to $1.14 before easing back to just under $1.1350. Sterling has also advanced strongly against the US currency, to over $1.3050, though its gains have lagged those of the euro, leaving EURGBP trading at around £0.8680 having briefly breached the £0.87 level earlier this morning.

Equity markets in the US finished between 2.5% and 4% lower yesterday, though the futures market suggests there may be some relief at the open later today, while Asian markets have been mixed overnight. European stocks finished 4% higher yesterday and are up about 1% at the start of play today. In bond markets, US government 30-year yields rose by the best part of 15bps, to just shy of 4.90%, and 10-year yields increased by almost 10bps, to just over 4.40%, though 2-year yields ended about 5bps lower amid a firming of Fed rate cut expectations. German 2-year yields also ended lower, as ECB rate cut expectations firmed as well, while 10- and 30-year yields were largely flat on the day.

This morning’s UK GDP data for February were a good deal stronger than expected. The economy expanded by 0.5% on the month (+0.1% expected) after stagnating in January, with output gains recorded across manufacturing, services and construction, and over the three months to February grew by a solid 0.6%.

Yesterday’s US CPI inflation data were very benign, but largely ignored by the market, and may be just the calm before a tariff-related “storm”. Headline consumer prices fell by 0.1% and core prices (i.e. excluding energy & food) rose by 0.1% in March, resulting in a deceleration in the annual rates of headline and core inflation to 2.4% and 2.8% respectively from 2.8% and 3.1% in February. Within core inflation, goods inflation was unchanged at -0.1%, but is likely to increase as tariffs hit, while services inflation fell to 3.7%, the lowest reading since December 2021.

Looking to the day ahead, the main economic releases are in the US with producer prices and the University of Michigan survey of consumer confidence/inflation expectations both scheduled for release.