The week that was …
Economic round-up
ECB rate decision
As widely expected, the European Central Bank cut rates by a quarter-point, taking the deposit rate to 2.25%. The threat of tariffs appears to have cemented the decision. At its highs in mid-2023, the rate had stood at 4%. Read more from CNBC here
China GDP
China posted unexpectedly strong economic growth in the first three months of 2025. Growth had been expected to slow to 5.1% year-on-year, according to a Reuters poll, but it remained at 5.4% over the first quarter. Read more in ‘In focus’ below and from CNN here
UK inflation
Prices in the UK rose by 2.6% in the 12 months to March, less than the consensus forecast, but still ahead of the Bank of England targets. The fall was driven by lower petrol and toy prices. Read more from the BBC here
UK employment data
The UK labour market weakened in February and March, though wage growth remained strong. Payrolled employment fell by 8,000. Annual growth in average weekly earnings, excluding bonuses, was 5.9 %. Read more from the FT here
US retail sales
US retail sales jumped 1.4% month-on-month in March – in line with consensus expectations. Consumers appear to have brought forward spending plans in a bid to avoid price hikes as tariffs come into effect. Read more from ING here
Japan inflation
Japan’s core inflation accelerated in March, on the back of rising food prices. March core CPI rose 3.2% year-on-year, in line with consensus forecasts. Read more from Reuters here
IMF on recession prospects
Trade tariff uncertainty is “literally off the charts” but there will not be a global recession, according to the International Monetary Fund (IMF). The group said its new growth projections would include “notable markdowns, but not recession”. Read more from the BBC here
Markets round-up
Fed chair intervenes
Federal Reserve chair Jerome Powell warned tariffs were generating a “challenging scenario” for the US central bank as they were likely to raise inflationary pressures and could dent growth. Read more from the Guardian here
Eurozone bonds
The simultaneous surge in the euro and German government bonds suggests eurozone debt is increasingly seen as a safe haven. German bonds and the euro usually move in opposite directions. Read more from the FT here
Earnings revisions
Wall Street banks have cut earnings targets for companies in the S&P 500 index over fears on the economic fallout from President Donald Trump’s trade war. Read more from the FT here
“A disorderly unwinding of dollar dominance would be hugely disruptive for global financial markets – in particular, it is difficult to see how a reorganisation of US debt would be interpreted as anything other than a default.
Selected equity and bond markets: 11/04/25 to 18/04/25
| Market | 11/04/25 (Close) |
18/04/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4304 | 4472 | +4.5% |
| S&P500 | 5363 | 5283 | -0.3% |
| MSCI World | 3471 | 3476 | Flat |
| CNBC Magnificent Seven | 281 | 267 | -5.3% |
| US 10-year treasury (yield) | 4.49% | 4.33% | |
| UK 10-year gilt (yield) | 4.76% | 4.57% |
Investment round-up
Woodford plans portfolio service
Neil Woodford is planning to launch a new portfolio service – ‘W4.0’ – which would allow followers to emulate his investment strategies. He said it would give subscribers access to active investment strategies he had built, with “the freedom to act on them through your own broker or platform”.
Liontrust sees outflows
Liontrust saw its AUM drop by 8% in the three months to the end of March. The asset manager’s quarterly update showed net outflows of £1.3bn over the period and another £1bn drop in the first 10 days of April, falling to £22.6bn.
Fidelity Japan invites bids
Fidelity Japan will be open to bids for a potential merger from other investment trusts if its upcoming continuation vote is approved, according to a stock exchange announcement. The trust received a merger proposal from AVI Japan Opportunities earlier this month.
Polar Capital AUM down
Polar Capital’s assets under management fell by 10% in the first quarter of 2025. The group attributed the weakness to market volatility associated with Trump tariffs. Assets under management (AUM) fell from £23.8bn on 31 December 2024 to £21.4bn at end of March.
Advisers target income solutions
Advisers were prioritising income-generating solutions for their clients in the first quarter of the year, according to Square Mile’s quarterly Market Intelligence Report. Searches for income-related strategies accounted for 42.3% of all views – an increase of nearly five percentage points on the final quarter of 2024.
FCA consults on composites
The Financial Conduct Authority has released a consultation paper outlining further proposals on product information for consumer composite investments. Read more from Simmons & Simmons here
… and the week that will be
IMF and World Bank spring meetings
The great and the good in global finance will meet in Washington for the annual IMF and World Bank spring meetings. Global growth forecasts will be updated and there is likely to be plenty of discussion about the impact of Trump’s trade wars. Finance ministers – including the UK’s Rachel Reeves – may hope to conclude important deals. Expect plenty more headlines from the US capital in the week ahead. Read more from the FT here
Global PMI data
Forward-looking PMI data is set to be released for the world’s major economies, including the EU, France, Germany, India, Japan, the UK and the US. It is likely to show the early impact of Trump’s tariff disruption and may offer some clues as to the ultimate economic impact. Read more from S&P Global here
The week in numbers
PMI data: S&P Global manufacturing and services purchasing managers’ index (PMI) data released for the EU, France, Germany, India, Japan, the UK and the US.
UK retail sales figures: Consensus expectations are for March sales to fall 0.3%, month on month.
UK public sector finances: March numbers to be released.
In focus: Cents less
The latest Bank of America Global Fund Manager Survey revealed more bearishness among professional investors around the prospects for the US dollar than at any time in almost two decades. More than 60% of the survey’s respondents now expect the greenback to depreciate over the next 12 months – so just how seriously would this weakness threaten its status as the world’s reserve currency?
At the start of 2025, the euro reached near-parity with the US dollar – at €1.02. Since then, the dollar has seen a significant sell-off, taking it to €1.14 versus the euro. The DXY benchmark, which measures the dollar against a range of other currencies, is down 9.3% over three months. In effect, the US’s currency has become the bellwether for confidence in the country’s economy.
There is an argument that this is all part of the plan. President Donald Trump and those around him have become convinced the strong dollar is holding back America’s industrial development and making US exports less competitive. Certainly, a strong dollar removes a tool that has been open to other governments in rebalancing their economies – currency depreciation.
Nevertheless, the dollar being the reserve currency of the world has brought the US certain privileges – not least a ready market for its debt and therefore the ability to borrow cheaply. The dollar is also the default currency, of course, for international trade, including commodities such as oil and gold – and its exalted position means US monetary policy is vastly influential for financial markets around the world. Trump appears disinclined to give up these privileges and policy-making appears erratic as a result.
The normal options for currency depreciation, such as buying other currencies or cutting interest rates are either impractical or out of the government’s control. The current policy appears to be to weaken the dollar by making the country less attractive as an investment destination. According to David Lubin, Michael Klein Senior Research Fellow in the Global Economy and Finance Programme at Chatham House, however, this is a “dangerous doubled-edged sword and highly unpredictable”.
The dollar has been part of the collateral damage of broad-based deleveraging since the Liberation Day tariff-saga.”
Another option would be for the US to convince other countries holding US debt to take a haircut on their holdings, reducing the debt levels by force. This has happened before – witness the ‘Plaza Accord’ of 1985, which brought together the US, the UK, Japan, West Germany and France – but it would be tough to pull off the same manoeuvre today.
“If the administration really does aim to erode the dollar’s status, the international monetary system could enter a form of anarchy it hasn’t experienced since President Richard Nixon disconnected the value of the dollar from gold more than 50 years ago,” notes Lubin.
End of dollar dominance?
It is worth putting the current sell-off into context. The dollar has been on a lengthy bull run and, even after its recent sell-off, it is only 6.9% behind the euro over one year. As Oxford Economics puts it: “The dollar has been part of the collateral damage of broad-based deleveraging since the Liberation Day tariff-saga. The dollar – and rates – sell-off made sense given the accumulated long DXY positions over the last 18 months.”
The catalyst has been the imposition of tariffs across the globe, which currency markets have concluded represents a threat to the US economy. The question is whether there are longer-term implications from this temporary loss of faith in the greenback. More excitable commentators have been quick to call the end of the dollar’s status as a reserve currency.
Oxford Economics tempers any move to call the end of this dominance, however, explaining: “The dash to cash amid margin call-driven liquidations drove the greenback’s mechanical weakness in the aftermath of the tariff announcements, rather than a fundamental re-evaluation of the US dollar’s role as the global reserve currency and lender of last resort.
John Plassard, senior investment specialist at Mirabaud Group, points out the dollar is still vastly dominant in global foreign exchange reserves. He points to IMF official figures from the end of 2024 that show that 57.8% of allocated reserves are in the dollar – its nearest contender is the euro, with 19.8% of allocated reserves.
Even if the US dollar does retain its global reserve currency status, that does not mean it cannot weaken further.”
Still, says Plassard, it is worth noting that dollar reserves are falling and he adds: “This is the lowest level since 1994, with a loss of 7.3 points in 10 years. This shows the slow but steady diversification of central banks.” Mind you, the Chinese renminbi does not come close – “weakened by capital controls and convertibility problems”, it comprises just 2.2% of reserves, down for the seventh consecutive quarter and its lowest level since 2020.
“At the start of each year, many analysts predict ‘the end of the dollar’,” says Plassard. “This still has not happened – nor will it for a long time to come. While it is true that the dollar’s dominance of global reserves has declined since the advent of the euro, and that a group of smaller currencies are becoming increasingly important, the greenback’s dominance will continue for many years to come – whatever your views on the world’s number one economy and … Donald Trump!”
Further falls?
For his part, Pramol Dhawan, a portfolio manager at Pimco, is rather less confident on the enduring power of the dollar, believing its status is not guaranteed. “If global capital flows into US assets dwindle, it could point toward a more multipolar world with a diminished reliance on a singular reserve currency” he says. “In a more multipolar world, there may no longer be a need for a singular reserve currency. Multiple options would be necessary to safeguard national security interests, ensure diversification and deliver stable returns.”
Dhawan argues the dollar has only just begun to weaken although he concedes that “sentiment and market performance could quickly reverse if we see a shift toward less disruptive – and more predictable – US trade policies.” Nevertheless, he remains underweight the US dollar, explaining: “The US has the largest negative net international investment position, financed by global capital. As this rebalances, the dollar may weaken.”
This highlights an important point. Even if the US dollar does retain its global reserve currency status, that does not mean it cannot weaken further. Indeed, as this is the express intention of the US administration, that outcome appears the most likely.
While dollar weakness is too short-lived to create any significant winners yet, there is no reason why it should not follow traditional patterns. A weaker dollar would benefit certain emerging markets with dollar-denominated debt, or exchange rates tied to the currency. Gold has undoubtedly already been a beneficiary of dollar weakness. It should also make US exports more competitive abroad.
Nevertheless, a disorderly unwinding of dollar dominance would be hugely disruptive for global financial markets – in particular, it is difficult to see how a reorganisation of US debt would be interpreted as anything other than a default. Investors need to hope the US administration can pull off a Goldilocks ‘not too hot, not too cold’ depreciation of the dollar – but that is a tough ask.
Read more on this from Chatham House here, from DW here, from the FT here and from Janus Henderson here. Or listen to These Times podcast here
In focus: China bounce
China’s GDP showed a surprise bounce in the first quarter of 2025, suggesting stimulus policies are working to boost growth and, in turn, providing more firepower in the country’s trade war with the US. Even so, there is a question as to whether this nascent growth story could be derailed by the tariff problem.
Oxford Economics points to an economy firing on all cylinders, noting that private investments turned positive for the first time in eight months, retail sales received a significant boost from the government’s trade-in programme and household expenditure accelerated. Household savings fell, meanwhile – a sign that consumers are becoming more confident.
According to Sandy Pei, a senior portfolio manager at Federated Hermes, this marks a remarkable turnaround for the Chinese economy. “Before Liberation Day, China was at the end of an extended economic downcycle – but showing signs of improvement due to policy shifts since September 2024 and a recovery in business confidence following the DeepSeek event,” she says.
“The property-related drag decelerated, with stabilising prices and much lower inventory levels. The GDP contribution from properties halved to 15% from 30% at its peak. Low-end manufacturing had been moving away from China to lower-cost regions for a long time. Supply chain restructuring led many international and Chinese companies to build capacity both within China for domestic needs and outside China for global needs.”
The economy is unlikely to be able to swerve the impact of a trade war, however, even if it appears to have the upper hand as Trump backed down from tariffs on electronics imports from China. “Our view is that the improvement in growth momentum is very likely to be short-circuited in the coming months by the incoming headwinds of punitive tariffs,” says Louise Loo, lead economist at Oxford Economics.
Pei says economists are currently forecasting a negative hit of 1.5% to 2.0% impact on China’s GDP in 2025, adding: “More stimulus could offset some of this impact and the Chinese government appears receptive to more fiscal expansion to support growth.”
The disruption has, so far, done little to dent equity returns. The Chinese market has remained relatively stable, with high dividend yields and stock buybacks encouraging domestic investors to return to the market. Valuations are undemanding and international investors are still underweight. There is likely to be further volatility ahead as the trade war rumbles on, but the Chinese economy looks to be in a robust position.
