Tariff News Back in the Spotlight Along with A Looming U.S. Federal Government Shutdown – Currency Thoughts
Tariff News Back in the Spotlight Along with A Looming U.S. Federal Government Shutdown
September 26, 2025
President Trump has unveiled several fresh tariff hikes, including a levies of 100% on imported pharmaceuticals, 25-50% on bathroom vanities and kitchen cabinets, and 25% on long trucks. China and other Asian economies are seen as particularly vulnerable. The EU is raising its tariff on Chinese steel.
Oddsmakers foresee a big likelihood of a U.S. government shutdown at midnight next Monday. During the previous longest shutdowns in December 2018, December 1995 and October 2013, the dollar experienced inconsequential net movement against key European currencies. Dollar/yen hardly changed in the 2013 instance, but the U.S. currency rose by 3.0% and 3.5% versus Japan’s currency in the other two episodes.
The more immediate market concern this Friday is the U.S. release of the August personal consumption price deflator, due in about 30 minutes. Analysts are predicting a slightly higher inflation pace than experienced in July.
Ahead of that release, the dollar retains yesterday’s gains but has made hardly any further net movement. The 10-year U.S. Treasury yield is unchanged, while comparable sovereign debt yields have slipped three basis points in the U.K. and two bps in Germany, France, Italy and Spain. Price changes overnight in gold, bitcoin and oil have been minimal, Ditto for U.S. stock futures, but Asian equity markets experienced some hefty declines, including drops of 2.5% in South Korea, 1.7% in Taiwan, 1.4% in Hong Kong, 0.9% in Japan and India and 0.7% in China. Major European stock exchanges, in contrast, are 0.3-0.5% higher.
As was expected, the Bank of Mexico late yesterday cut the overnight interbank rate by another 25 basis points to 7.5%. That brought its cumulative drop during 2025 to 250 basis points on top of 125 basis points of easing in 2024. The peak rate from March 2023 to March 2024 had been 11.0%. Mexican inflation remains somewhat above the medium target of 3% but is expected to return there within the forecast horizon. While one policymaker voted to keep the interest rate at 7.75%, the majority of policymakers seem inclined to lower the rate further in the future but are making no guarantees. “The changes in economic policy by the new US administration have added uncertainty to the forecasts. Their effects could imply inflationary pressures on both sides of the balance.”
Tokyo consumer prices when excluding both food and energy, which are considered a leading indicator of Japanese national trends, dropped a half percentage point in September to a 6-month low year-on-year rise of 2.5%. Corporate service price inflation in Japan edged 0.1 percentage point higher in August, however, to a 2-month high of 2.7%
Austria’s manufacturing purchasing managers index retreated 1.5 points in August to a 3-month low of 47.6, indicating a faster pace of contraction.
In Italy, consumer sentiment against printed below the 100 threshold but rose half an index point to a 2-month high of 96.8 in September. Among Italian manufacturers, business confidence printed at 87.3 for the third time in the past four months. A low this year of 85.9 was touched in April.
Spanish GDP growth in the second quarter has been revised upward to 0.8% on quarter and 3.1% on year. With growth of 3.5% in 2024, Spain has had the fastest expanding economy of Euroland’s four largest economies.
Retail sales in August were 2.5% higher in Denmark than a year earlier. Sales in Lithuania posted an even larger 6.4% jump from August 2024.
Expected inflation for the coming year in Euroland among consumers accelerated in August to 2.8%. That’s the highest forecast since the survey taken in May. Inflation expectations covering a five-year time horizon edged 0.1 percentage point higher to an average 2.2%, which is above the ECB’s target.
Monthly growth in U.S. personal consumption expenditures (0.6%) and personal income (0.4%) each exceeded market expectations slightly. The rise in consumer spending was the most since March. The PCE price deflators, which Federal Reserve policymakers consider the most representative of inflation monitors, matched market expectations. The overall deflator went up 0.3% on month and 2.7% on year after July’s increase of 0.2% on month and 2.6% on year. Excluding food and energy, core PCE climbed 0.2% on month and remained at July’s 2.9% year-on-year pace. Along with yesterday’s slew of U.S. data releases, this report weakens the argument of Federal Reserve Governor Miran in favor of cutting interest rates by an increment larger than 25 basis points.
Canadian monthly GDP rose 0.2% in July, breaking a streak of three consecutive 0.1% dips in April, May and June, but early indicators of August point to renewed stagnation. Industrial production advanced 0.9% in July after falling by over 2% during the second quarter.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Mexico, Japanese corporate service prices, tariff news, U.S. PCE price deflator
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