Dollar Rises After Announcements by the Fed and in Response to A Trade Deal Between the U.S. and U.K. – Currency Thoughts
Dollar Rises After Announcements by the Fed and in Response to A Trade Deal Between the U.S. and U.K.
May 8, 2025
The dollar strengthened 0.8% against the yen, 0.3% versus the Swiss franc, 0.4% against the Canadian dollar, 0.1% versus the New Zealand and Australian dollars, and 0.2% relative to the euro.
The Federal Reserve’s decision to keep its 4.25-4.5% interest rate target unchanged and expression of comfort with that policy stance has been well-received by investors.
It took 107 days since inauguration day, but the Trump administration finally nailed down its first bilateral trade deal, that being with Great Britain. More deals in the future are promised, but other European governments and China are not taking any chances and are instead making contingency plans of retaliatory steps if trade negotiations fail. On balance, the news of a U.S./British deal also buoyed market sentiment.
Equity markets in Europe are up 1.5% in Italy and 0.9% in Germany and France. Share prices closed slightly higher in China, Japan and Hong Kong. Stock markets fell in Indonesia and India, and the British FTSE is down a bit.
Prices for oil (+2.7%) and Bitcoin (+2.8%) have made notable gains so far this Thursday, but gold dropped 0.9%.
Ten-year sovereign debt yields have climbed five basis points in the U.S. and U.K., four bps in Germany, three bps in France, Japan and Spain, and two basis points in Italy.
The Bank of England cut its base rate by another 25 basis points, while interest rates were kept at existing levels today after policy reviews in Norway, Sweden and Malaysia. All of these actions, like that of the Federal Reserve yesterday, met market expectations. See my analysis on these four other central banks for more details.
New U.S. jobless insurance claims settled back to a 2-week low of 228k last week. A separate release for U.S. productivity revealed the first quarterly contraction of labor productivity (-0.8% in January-March) in eleven quarters, which was paired with a 5.7% annualized spike in unit labor costs. Compared to the first quarter of 2024, productivity increased 1.4%, while unit labor costs went up 1.3%.
German industrial production jumped 3.0% on month during March. This increase extended the recent pattern of alternating increases and declines (including -1.3% in February) but still represented to largest monthly advance in 41 months. Even so, output was 0.2% below its March 2024 level. A separate data report from Germany showed the largest seasonally adjusted trade surplus (EUR 21.1 billion in March) since December, as imports fell 1.4% on month while exports rose by 1.1%. The first-quarter surplus of EUR 53.3 billion was down from EUR 68.4 billion in the first quarter of 2024.
Spanish industrial production in March rose 0.9% on month and 1.0% on year.
Several countries released consumer price figures. Cypriot CPI inflation of only 0.2% in April was well down from 1.6% in March and 10.9% in July 2022, and the latest pace represents a 41-year low. In Estonia where inflation crested at 24.8% in the summer of 2022, CPI inflation edged 0.1 percentage point higher to a 2-month high of 4.5%. Irish CPI inflation rose to a 9-month high of 2.2% last month, having previously slowed from 9.2% in October 2022 to just 0.7% in September and October of 2024. Mexican CPI inflation of 3.9% last month was at a 4-month high.
Brazilian producer prices fell 0.6% on month, which depressed their 12-month rate of increase to a 4-month low of 8.4% in March from 9.4% in February.
On-year British house price inflation, according to the monthly Halifax index, accelerated unexpectedly to 3.2% last month but remain far slower than 12.5% touched in April 2022.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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