The UK CPI was weaker than expected in February at 2.8%yr compared to 3.0%yr in January. Core inflation edged down from 3.7%yr to 3.5%yr, but services inflation held up at 5.0%yr. However, decrease in both was mainly driven by weaker core goods inflation, while services inflation, which the BoE officials follow closely, was unchanged at 5%yr.
The US dollar has weakened modestly start the start of this week resulting in the dollar index falling back below the 104.00-level. The main trigger has been Bloomberg report stating that President Trump’s plans for a “Liberation Day” tariff announcement on 2nd April is poised to be more targeted according to aides and allies.
We have long stressed that diminished US exceptionalism represents a meaningful risk to our stronger Dollar view, and the path for the Yen in particular. When markets are most concerned about US growth, pushing both yields and equities lower, the Yen tends to outperform even the Dollar.
There is no doubt that Europe’s response to changing US policies has been swifter and more definitive than expected. In isolation, stronger fiscal spending should be a powerful antidote to policy uncertainty and other maladies that have plagued the Euro.
The US dollar is little changed at the start of this week as it continues to trade at weaker levels following last week’s sharp sell-off. The dollar index has fallen back below the 104.00-level giving back all of its gains since the US election victory for President Trump.
Despite all the noise around DOGE actions, spending cuts, and tariffs, we don’t think there has been anything these last few weeks that has definitively proven that the actual delivery of tariffs or spending cuts are going to be worse than expected.
