JDR Securities | Market Insight – 15 May 2025
Sterling surged to its highest level in three years against the U.S. dollar on Wednesday, propelled by a stronger-than-expected U.K. inflation print. Consumer prices in the U.K. rose 3.5% year-on-year in April, up sharply from 2.6% in March and exceeding analyst expectations of 3.4%. Core inflation also accelerated to 3.8%, reinforcing speculation that the Bank of England will delay rate cuts originally anticipated for June.
GBP/USD touched 1.3469 before paring slightly, extending its month-long rally, driven both by domestic inflation dynamics and broader dollar weakness.
The dollar index (DXY) slumped to 99.59, continuing a two-day decline of 1.3%, weighed down by political instability, policy ambiguity, and a loss of investor confidence in U.S. assets. President Trump’s failure to unify Republican support behind his tax reform bill added fuel to the selloff, amplifying concerns over the ballooning $36 trillion U.S. debt pile and the potential $5 trillion impact of proposed tax cuts.
Moody’s recent downgrade of U.S. sovereign credit—although initially brushed off by markets—has found renewed relevance as investors reassess America’s fiscal credibility. Add to this a lack of concrete progress in U.S. trade negotiations and a series of Fed officials openly expressing caution about the economic impact of tariffs, and the “sell America” narrative has regained traction.
Bond Market Dynamics & Global Sentiment
While U.S. Treasury yields remained elevated, the greenback found little support. Investors instead flocked to traditional safe havens like the yen, Swiss franc, and gold. The USD/JPY slipped to 143.71, while USD/CHF traded down to 0.8222.
Japanese bonds remain in focus after Tuesday’s selloff in super-long tenors, driven by uncertainty surrounding fiscal stimulus plans. The yen found support as Japan’s Finance Minister Kato reiterated that excessive exchange rate volatility is undesirable ahead of scheduled bilateral talks with U.S. Treasury Secretary Scott Bessent.
Gold Rallies on Geopolitical Risk
Gold prices climbed to $3,301, marking their highest level in over a week, as geopolitical risks re-entered the spotlight. Reports of Israel preparing a strike on Iranian nuclear sites reignited Middle East tensions, pushing demand for safe-haven assets higher.
The rally in bullion was supported by a softer dollar and a broad risk-off tone as Fed officials warned that tariffs continue to drive inflation and suppress growth. Fed Chair Jerome Powell emphasized the need for patience, indicating that no preemptive rate cuts would occur despite mounting stagflation fears.
Outlook
Investor sentiment remains fragile as global uncertainty deepens. While the U.K. inflation surprise boosts the pound and delays BoE easing, persistent risks—from U.S. fiscal uncertainty to geopolitical flashpoints—are keeping volatility elevated.
The market remains in flux. All eyes now turn to G7 finance minister meetings in Canada, where discussions around trade, currency stability, and dollar strength could redefine the short-term macro landscape.
