Good morning,
The Village People are now split into two warring factions—one performing at Trump rallies, the other furiously denying any affiliation. Victor Willis, the group’s original “cop,” has cashed in, licensing the use of YMCA after years of legal battles. Meanwhile, former bandmates are horrified, with one calling Willis “extremely litigious.” It’s an oddly fitting alliance—Trump, a man with a long history of reinvention, now rallying crowds with a song born in ‘70s gay clubs. You couldn’t make it up.
Last Week
Sterling had a rollercoaster week, briefly gaining ground as Trump’s tariffs on Canada, Mexico, and the EU saw it behave like a safe haven. Hopes that the UK might be spared kept sentiment steady—until Trump casually remarked, “it might happen.” By Thursday, reality set in. The Bank of England cut rates again, warning of stagnation, rising unemployment, and a tough road ahead. The move was a stark contrast to Labour’s promises of growth, raising questions about how they plan to turn things around. Meanwhile, inflation is creeping back into the conversation, threatening to complicate any further rate cuts. The pound, once resilient, ended the week on the defensive, caught between political uncertainty and an economy struggling to find momentum.
Donald Trump’s sweeping tariffs on China, Mexico, and Canada sent shockwaves through global markets, with the dollar surging as investors scrambled to assess the fallout. The Canadian dollar hit its lowest level since 2003, while the peso plunged nearly 3%. Asian stocks followed suit, and US futures tumbled—S&P 500 contracts slid 2%, while the Nasdaq fell 2.6%. Markets expect inflationary pressure in the US, but for the UK, the immediate impact appears muted. Sterling has held up better than most G10 currencies, moving alongside traditional safe havens like the yen and Swiss franc. However, the real risk isn’t direct tariffs—it’s slower global growth and tighter financial conditions that could squeeze the UK economy in the months ahead. Meanwhile, fresh uncertainty over US-China trade talks adds another layer of risk to an already volatile picture.
India’s central bank has cut interest rates for the first time in nearly five years, lowering the benchmark repo rate to 6.25% in a bid to revive economic growth. The move, widely expected by economists, reflects mounting concerns over a slowdown in the world’s most populous country. RBI governor Sanjay Malhotra, who took office in December, signalled that further easing could follow, citing expectations of continued inflation declines from December’s 5.2% level. The decision marks a shift in policy after years of caution, with the central bank now prioritising growth over inflation risks. While markets had priced in the cut, investors will be watching closely for signs of how quickly the RBI might move again, particularly as global financial conditions remain tight.
This Week
With central bank decisions for 2025 largely settled, attention now turns to US inflation data, with Wednesday’s CPI report in focus. A softer-than-expected reading could reinforce bets on rate cuts, adding pressure to the dollar, which has already retreated from two-year highs. Meanwhile, President Trump remains a wildcard for markets, with his tariff war escalating rather than easing. While recent conciliatory signals helped lower Treasury yields, uncertainty looms as Congressional Republicans debate how to fund an extension of the 2017 tax cuts amid rising debt concerns. Retail sales data on Thursday will also provide clues on Fed policy, as strong consumer spending could offset expectations for rate cuts. For now, markets remain hesitant to fully price in two cuts this year, wary of trade risks and inflation surprises.
The pound is eyeing Thursday’s UK GDP release after the Bank of England’s recent rate cut, with investors hoping for signs of resilience in the economy. Growth has been sluggish since last summer, and forecasts suggest a slight contraction in Q4, raising concerns over the BoE’s next moves. While inflation risks persist due to elevated wage growth and Labour’s budget measures, weak output could strengthen the case for further easing. Sterling has shown some stability after hitting a 13-month low in January, helped by Trump’s reluctance—so far—to impose tariffs on UK imports. However, any shift in that stance could pressure the currency. Political uncertainty also lingers, with speculation that Prime Minister Keir Starmer may reshuffle his cabinet, potentially replacing Chancellor Rachel Reeves.
Key Events
Tuesday February 11th
12:15 Gov Bailey Speaks
15:00 Fed Chair Powell Testifies
Wednesday February 12th
13:30 US Core CPI
15:00 Fed Chair Powell Testifies
Thursday February 13th
02:00 New Zealand Inflation Expectations
07:00 UK GBP
07:30 Swiss CPI
13:30 US PPI & Unemployment Claims
Friday 14th February
13:30 US Core Retail Sales
Have a great week,
Garton Team.