Bowman hints at three cuts this year, with US CPI due tomorrow

The week has kicked off with tentative gains in Europe, with traders increasingly focused on the prospect of a breakthrough in peace negotiations when Trump meets Putin on Friday. There will always remain a degree of hesitation given the low likelihood of a peace agreement that is satisfactory for both Ukrainian and Russian sides. Nonetheless, in a week that sees US inflation as a focal point, the recent weakness in oil prices do provide the basis for depressed energy inflation. That decline in oil prices does highlight a degree of optimism that a deal to end the war would also bring lower sanctions and the free flowing of Russian oil and gas globally. However, the healthy flow of energy products into China and India serve to highlight that the impact on Russian exports have been minimised by demand from their fellow BRICS nations.

US tech investors will be attempting to weigh up the implications of a surprising deal that sees the US government take 15% of Nvidia and Arm chips sales in China. Notably, this marks the beginning of a new phase of taxation for Donald Trump, with the President targeting specific businesses in a bid to raise money through market access. Coming as we move towards the end of a phase which has seen countries negotiate in a bid to gain access to the US consumer, could we now see Trump seek to charge US businesses for the privilege of selling their products abroad? In essence Trump appears to be implementing his own tariffs on US companies so the government can get paid on both imports and exports. For a market perspective, the potential revenue benefits have helped stabilise the dollar as we see another fresh source of funds emerge that could ease debt concerns.

This week sees US inflation come into the fold, with markets seemingly settling down after a period that saw sharp declines for the dollar on the growing confidence of a more rapid path lower for US rates. Weekend comments from Fed member Bowman highlighted that same narrative, indicating that she sees a further three 2025 hikes as likely. However, she also noted the potential need to provide a 50bp cut in the event that the jobs market continues to weaken. Nonetheless, there are two sides to the Fed’s dual mandate, and thus a potential tariff fuelled rebound in prices could yet stifle the recent dovish turn to the benefit of the dollar.