After spending most of the day trailing the pound, the dollar clawed back to lead on sterling and the euro by day’s end. Above expected inflation rises this morning highlighted the challenges facing the UK government.
Buoyed by data showing average earnings had increased by 6%, while unemployment figures remained level, the pound led the dollar and the euro for most of Tuesday. There had been fears of widespread layoffs ahead of the new Employer National Insurance Contributions due to come in at the start of April, but they’ve yet to materialise.
Though yesterday’s gains were diminished by this morning’s news that UK inflation has risen to 3%. At the start of February, the Bank of England’s governor Andrew Bailey had warned of a coming inflation rise, even as the Monetary Policy Committee voted to lower interest rates.
The markets didn’t immediately react, perhaps because of Bailey’s clearly telegraphed expectations. The governor also stated earlier this month that despite inflation rises, the Bank planned to continue cutting the interest rate through 2025.
The dollar regained the lead on Tuesday afternoon following the US’s meeting with Russia. After five hours of talks, US secretary of state, Marco Rubio, claimed the two countries would explore “economic and investment opportunities which will emerge from a successful end to the conflict in Ukraine.”
Trump also suggested a new set of 25% tariffs on cars, drugs and semiconductor chips. Though, as has been the case since his inauguration, these musings came without firm details or a fixed timeline.
Later today, the US will publish fresh building data. At the end of 2024, there was a decrease in the number of new building permits being issued and analysts predict that will be reflected in a drop in the umber of new homes being built. A slowdown that could indicate a flattening of the US’s growth prospects.
Without positive data or announcements, the euro closely trailed the pound and dollar throughout Tuesday. With no more major data due to be published by the EU this week, the biggest impacts to the euro’s prospects could come from the US’s talks with Russia in Riyadh. Any plans to reopen trade with Russia or easing sanctions will dramatically alter the balance of trade in the eurozone. The market may well become more volatile after Sunday’s elections in Germany.
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