UK Wage Slowdown Reinforces BoE Rate Cut Outlook as Markets Eye U.S. Inflation Data
John Hall • May 13, 2025
πΊπΈ CPI in the Spotlight: Today’s U.S. CPI print could shape the Fed’s next move — and the dollar’s trajectory — in the weeks ahead.
Key Market Takeaways:
- Dollar Surge: The U.S. dollar posted its strongest daily gain in a month, reflecting renewed demand ahead of key inflation data.
- UK Labour Data Hints at Easing: Latest UK employment figures suggest enough softness to support expectations for two rate cuts from the Bank of England this year.
- U.S. Inflation in Focus: All eyes on the CPI report due later today, which could shape the Fed’s policy tone in the coming weeks.
Market Recap:
- Dollar Strengthens Sharply: The U.S. dollar extended gains on Monday, recording its strongest daily performance in a month. The move followed news of a temporary tariff truce between the U.S. and China, which boosted confidence in the greenback.
- Safe Havens Retreat: As risk sentiment improved and flows shifted back into the dollar, major safe-haven currencies like the euro (EUR), Swiss franc (CHF) and Japanese yen (JPY) saw notable declines.
What this means...
Improved trade relations and stronger risk appetite are encouraging investors to rotate out of traditionally defensive currencies and back into the U.S. dollar. This trend could continue if upcoming U.S. inflation data reinforces the Fed’s hawkish outlook.
Today’s Market Update:
π¬π§ UK Labour Data Supports Further BoE Cuts
- Wage growth eased to 5.6% in the three months to March — softer than expected.
- Unemployment held steady at 4.5%, while payroll numbers declined by 33,000 in April.
- These figures reinforce the likelihood of additional rate cuts from the Bank of England, with markets pricing in moves as early as August and November.
- GBP remains steady this morning as investors digests the data.
π Risk Sentiment Cools Slightly
- After Monday’s optimism, global equity markets are showing signs of caution, with a softer open expected in Europe.
- The dollar has pulled back modestly after its strong rally, suggesting markets are now waiting for a fresh catalyst.
πΊπΈ CPI in Focus: A Key Test for the Dollar
- All eyes are on today's U.S. CPI release, which will help determine whether the dollar’s recent strength has legs.
- A hotter-than-expected inflation print could reaffirm the Fed’s less dovish stance, reducing expectations for rate cuts and pushing the dollar higher.
- If momentum holds, analysts see potential for the greenback to gain another 2–3% in the coming weeks.
13th May 2025
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