Dollar Recovery Signals Confidence Powell Will Escape Indictment

Economic

Summary:

Dollar set to rebound as Powell avoids indictment.

The dollar is set to rebound as the latest efforts by the White House to capture the Federal Reserve fail.

This is the base case assumption at Standard Chartered, one of the world's biggest banks, where analysts say the investigation or subpoena served on the Federal Reserve does not amount to a charge.

In a note to clients midweek, Standard Chartered analysts Steve Englander adds that "if there is no indictment, Powell speculation will likely fade."

That outcome became all the more likely after it was reported that Chairman Jerome Powell wrote to senators last July with details about the Federal Reserve’s $2.5bn renovation project.

This complicates the White House's claims that he misled Congress. The four-page letter, which has not been previously reported, was sent two and a half weeks after Powell testified to the Senate banking committee about the project’s cost overruns.

"An indictment requires alleging an intent to deceive, and it is possible that prosecutors will not find enough evidence to justify an indictment," says Englander.

Dollar Recovery Signals Confidence Powell Will Escape Indictment_1

Above: The dollar index shows the USD has recovered initial losses following the news of legal action being taken against the Fed.

The dollar initially fell on news of legal action being pursued against the Fed, but it has since pared those losses as investors grow more confident that a market-friendly outcome to the saga awaits.

Trump and senior administration officials have nevertheless indicated they will continue to pursue the matter.

The President told reporters Tuesday, "I think it’s fine what I'm doing... we have a bad Fed person."

"If we are wrong, however, and an indictment is put forward, the USD could come under more extended pressure. The President could argue that this gives a basis for dismissal for ‘cause’, however thin the premise is," says Englander.

If Trump's legal efforts to remove Powell succeed, it will set a precedent that other Fed officials cannot ignore.

"Other governors could similarly be put aside on thin pretexts in favour of more pliant officials," says Englander.

On this basis alone, Trump would see merit in pursuing Powell, despite his term nearing its end.

If he can get Powell, then his indirect grip on the Fed's personnel and policy tightens, allowing him to effectively capture the Fed.

"If employment-at-will applies to Fed governors, monetary policy would likely be easier and credibility lower, which are negatives for the USD," says Englander.

Source: Poundsterlinglive

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Ukadike Micheal

Remarks of Officials

Economic

Middle East Situation

Political

A powerful parable once captured the world's anxiety about a rising China. Today, that same story explains the disruptive behavior of the United States. The metaphor, from strategist Edward N. Luttwak, describes a crowded elevator where the passengers are nations.

Luttwak wrote, "Riders in a crowded elevator cabin into which an extremely fat Mr. China has just stepped in must react self-protectively if he is becoming fatter at a rapid rate, squeezing them against the walls—even if he is entirely unthreatening, and indeed affable."

He noted that the elevator already contained "an even fatter, louder, and frequently violent Mr. America," but his presence was familiar. Everyone had accommodated his bulk over the decades.

Published over ten years ago, this imagery perfectly captured a period of intense nervousness about China's rapid economic transformation. Western countries, led by the US, watched uneasily as China gained on them.

When China's Rise Made the World Nervous

While Luttwak suggested China could be "affable," its actions felt far from unthreatening to its neighbors. The sense of being squeezed was acute for countries like Japan and the maritime nations of Southeast Asia. They felt bullied as China built a blue-water navy to enforce extralegal claims over regional seas.

The advice I offered in my 2017 book, Everything Under the Heavens, was for the United States to remain calm. The country's best path was to keep its own house in order by staying open to the world and investing in its strengths in science and education. Washington was advised not to overreact with aggression but to strengthen its alliances and reinforce international law.

This strategy would have leveraged America's soft power, democracy, and rule of law, compelling China to compete on terms highly favorable to the US. While China has invested heavily in its own strengths like education, it has largely kept its head down diplomatically.

How Trump Flipped the Geopolitical Script

Two things have fundamentally changed since Luttwak wrote his parable. First, the world has grown accustomed to China's economic weight; its growth is now seen as a matter of fact, not a mind-blowing shock. Second is the astonishing behavior of the United States under President Donald Trump.

Over his terms, Trump has pursued policies that are the opposite of the calm, alliance-focused approach once recommended. In recent weeks, his administration's hyperaggressive actions have brought the elevator parable powerfully back to mind, but with the roles reversed.

With actions in Nigeria, Syria, and Venezuela—where Trump declared himself "acting president" after ordering the abduction of Nicolás Maduro—and threats against Iran, it is now the United States squeezing other countries against the elevator walls.

While China’s expansion was primarily economic, the US under Trump has pursued a different path reminiscent of the imperial age: territorial aggrandizement. The result is almost unimaginable. Today, it is often China, not the United States, that appears to be the global status quo power.

The most glaring example is Trump's escalation of claims to Greenland, with rhetoric vowing to get it "one way or another." This language echoes gangster films more than diplomacy and threatens to break Washington's relationship with Europe, turning a wary alliance into something far more distant.

The Global Reaction: Hedging Against An Unpredictable America

When one passenger in the elevator becomes aggressive, disregarding conventions, the others eventually have no choice but to push back. This is the reality the world is facing after Trump declared he has no use for international law, limited only by his own "morality."

This pushback doesn't necessarily mean mirroring the aggression. Instead, countries seek strength in numbers, forming coalitions to protect their interests. In international relations, this strategy is called hedging. It’s what nations do when long-standing partnerships are cast into doubt. We can expect to see much more of it.

Two key examples are already visible:

• Europe's trade deal with South America: A long-belated agreement finalized as a clear hedge against deteriorating transatlantic relations.

• Saudi Arabia's strategic pivot: Despite being heavily courted by Trump, Saudi Arabia has held talks to acquire Chinese fighter jets and has struck a mutual defense pact with nuclear-armed Pakistan. Even with access to America's most advanced weapons, Trump's erratic behavior has made the Saudis nervous.

America's Flawed Pivot to its Own Hemisphere

The urge to hedge is an ominous sign for the United States. The current administration is pursuing a foolhardy geopolitical shift, weakening commitments to allies in Europe and Asia for the fantasy that dominating the Western Hemisphere will make America better off.

This strategy is sheer folly. Latin America cannot compare to traditional allies like NATO, Japan, and South Korea in wealth, innovation, technology, or manufacturing. While reinvesting in Latin America is a worthy goal, abandoning established, powerful partnerships for a new hemispheric focus is a strategic error.

Furthermore, by throwing its weight around in Venezuela, and threatening to do so in Colombia, Mexico, and Cuba, the United States is ensuring that this balancing behavior will eventually come to its own backyard. It is only a matter of time.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Isaac Bennett

Political

Economic

Remarks of Officials

Daily News

Switzerland’s Federal Council announced on Wednesday it has adopted a final mandate to launch formal negotiations for a legally binding trade agreement with the United States.

The decision from the country's highest executive body paves the way for direct talks, following extensive consultations with parliamentary foreign affairs committees and Switzerland’s cantons.

Building on a Framework to Lower Tariffs

This move builds on a non-binding "framework" agreement established on November 14 between Switzerland, the U.S., and Liechtenstein. That preliminary understanding was aimed at reducing U.S. tariffs on Swiss imports as a precursor to a comprehensive agreement.

Under the terms of that framework:

• Washington set a 15% ceiling on country-specific tariffs for Swiss imports, down from a previous high of 39%. The reduction was applied retroactively from November 14.

• In return, Switzerland agreed to lower its duties on a selection of U.S. products, including fish, seafood, and agricultural goods considered non-sensitive.

Final Mandate Clarifies Negotiating Goals

The Federal Council had previously adopted a draft mandate on December 5, identifying its main goal as solidifying tariff relief for Swiss goods and stabilizing bilateral trade relations.

According to the Wednesday update, the final mandate has been slightly clarified based on feedback. A key adjustment strengthens the internal consultation process. The Swiss government has now committed to actively consult—rather than merely inform—parliamentary committees and the cantons if new topics emerge during the negotiations.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Adam

Forex

The yen fell to its weakest level in a year-and-a-half against the dollar on Wednesday on speculation of a snap election that could pave the way for fiscal stimulus, prompting traders to consider the possibility that Japanese officials may step in to prop up the currency.

The yen slipped as much as 0.2% to 159.45 yen per dollar , its weakest since July 2024. Compounding the pressure on the yen was an auction of five-year Japanese government bonds that attracted slack demand.

The yen has been sinking against everything from the euro to the Mexican peso for months as traders have grown increasingly worried about Japanese Prime Minister Sanae Takaichi's plans to spend big, a risk that would increase should she call an election next month and secure a healthy majority.

With the Japanese currency nearing 160 to the dollar, traders are on alert for possible intervention by authorities in Tokyo to defend it. CIBC Capital Markets head of G10 FX strategy Jeremy Stretch said the issue was less about the outright level at which the yen trades and more to do with how quickly it moved.

'FIXATION' ON DOLLAR VERSUS YEN

"Obviously, the fixation is on dollar-yen, but I think we need to keep a close eye on some of those other yen crosses because they've also been surging - euro-yen is at record levels, for example," Stretch said.

"It's dollar-yen that's very much in the crosshairs and the one that we continue to focus on. But it's not just the only element of this story. For now at least, it still seems to be the case of watching and waiting to see how far it goes before the authorities are perceived, or feared, to step in," he said.

In the last two months alone, the yen has lost around 3% against the dollar. In the run-up to previous interventions, in April and July 2024, for example, it had lost nearly 6% in that same timeframe.

Japanese Finance Minister Satsuki Katayama on Wednesday issued another verbal warning, saying officials would take "appropriate action against excessive FX moves without excluding any options".

This was enough to knock the dollar back to a session low of around 158.87 yen. It was last down 0.1% at 159.06.

STEADY DOLLAR AFTER INFLATION DATA

The dollar held steady near a one-month high against a basket of major currencies after U.S. consumer inflation data that was broadly in line with estimates, firming up expectations that the Federal Reserve would remain on hold later this month despite unprecedented pressure from the White House to lower interest rates.

The U.S. currency fell sharply on Monday, after President Donald Trump's threat of a criminal indictment against Fed Chair Jerome Powell. Global central bank chiefs and top Wall Street bank CEOs lined up in support of Powell on Tuesday.

"There's a very loud chorus of opinion coming from politicians, former Fed chairmen and other officials that Fed independence is sacrosanct and cannot be interfered with," said Brian Martin, head of G3 Economics at ANZ in London.

"It risks having adverse consequences of higher inflation, higher funding costs for the government and more volatility in economic activity," he said on a podcast.

SUPREME COURT RULING ON TARIFFS DUE

Also in the spotlight on Wednesday was a possible Supreme Court ruling on the legality of Trump's emergency tariffs.

"It could rule them legit, and if so we just move on. We suspect they will be struck down, and we'll probably still just move on," analysts from ING wrote in a research report.

"This Treasury market is showing a remarkable capacity to just not care too much about stuff."

Against the Chinese yuan trading offshore in Hong Kong , the U.S. dollar was flat at 6.9752 yuan after the release of trade data for December that showed Asia's biggest economy ending the year with a record surplus of nearly $1.2 trillion.

The euro was last flat at $1.1647, while the pound was last up 0.2% at $1.3448.

Source: Reuters

Risk Warnings and Disclaimers

Add to Favorites

Adam

Stocks

MARKET WRAPS

Stocks:

European stocks rose Wednesday with the spectre of potential further geopolitical instability looming and ahead of a slew of data releases expected from across the Atlantic.

Most of the region's leading bourses , including the CAC 40 and the IBEX 35, were in positive territory as precious metal prices filled the sails of the FTSE 100's miners.

President Trump told Iranians protesting against their government that help was on the way , suggesting that the U.S. could soon take some degree of action against Tehran.

That comes amidst lingering scrutiny facing Federal Reserve head Jerome Powell.

Broad support for Powell appears to already be influencing markets and the threat of a criminal indictment was, according to Columbia Threadneedle Investments, probably the most immediate market danger in terms of sentiment.

"We have seen in the past how any worries over its independence will not be taken well by financial markets. A perceived lack of Fed independence is [a] trouble for financial markets."

Global support for Powell suggests there could be a limit to Trump's ability to coerce the central bank, according to Westpac. That said, MFS Investment Management is of the view that threats against the Fed's independence are a major risk and reinforce the case for global asset diversification.

Concerns over the erosion of Fed policy independence will likely linger for quite a while, Pepperstone said, though barring further escalation, the market might look past this in relatively short order.

Economic Insight

The European Central Bank's vice president, meanwhile, argued financial markets were failing to register increased geopolitical uncertainties that have raised downside risks to economic growth.

"Negative surprises-such as a re-escalation of trade or other geopolitical tensions, setbacks in artificial-intelligence advances with asset price adjustments or intensifying doubts regarding U.S. fiscal credibility-could trigger abrupt shifts in sentiment, with spillovers across asset classes and geographies," Luis de Guindos said in a speech in Madrid.

U.S. Markets:

Stock futures pointed to a lower open Wednesday with a busy day of economic data expected, including retail sales and Producer Price Index figures for November as well as existing home sales for December. The Supreme Court could also weigh in today on the legality of Trump's tariffs.

"Our basic assumption is for them to be struck down, and we think the market is generally of the same opinion," ING said .

Forex:

The dollar was steady against a basket of currencies, as investors moved cautiously ahead of U.S. economic data and amid concerns about the Fed. The impact on the dollar was modest so far.

U.S. military strikes on Iran are now more likely. That said, traders shouldn't expect the dollar to react much , Commonwealth Bank of Australia said, adding that unless oil or equity prices move significantly, the dollar has mostly shrugged off geopolitical tensions in recent times.

The current strength of the dollar against the yen likely reflects a shift in market confidence, rather than a short-term rally, XS.com said, reckoning traders favor the dollar because its economy remains "resilient enough."

Bonds:

Germany will auction three government bonds simultaneously for the first time on Wednesday, offering a combined volume of 3 billion euros with maturities in July 2042, August 2052 and August 2056.

"Bunds are holding up fairly well given the massive supply wave, but markets face continued issuance pressure today," Commerzbank said.

Yields on U.K. government bonds rose modestly as investors await U.S. producer price and retail sales data.

The two-year and 10-year Treasury yields edged lower in Asian trade.

Energy:

Oil prices slipped as traders considered developments in Venezuela and assessed escalating unrest in Iran.

Up to 3.5 million barrels a day of oil, of which nearly 2 million barrels a day reaches the international market could be affected by any disruption to Iran's oil industry, ANZ said.

Gas

European natural-gas prices fell but held above 31 euros a megawatt hour on higher heating demand and fears escalating tensions in Iran could disrupt LNG supplies.

"A potential interruption of Iran's pipeline gas flows to Turkey could see European buyers buying more LNG just as demand in Asia is on the rise," ANZ said separately.

Metals:

Precious metals climbed to fresh record highs , with silver breaking above $90 an ounce on softer-than-expected U.S. inflation data and rising geopolitical risks. New York gold futures rose 0.9% after reaching a record of $4,647.60.

"Persistent tensions, including political pressure on the Fed and geopolitical flashpoints, have lent further support to precious metals, with some possibility that silver and gold could reach new milestones in the coming months. Markets are also watching a U.S. section 232 investigation that could lead to tariffs on silver, potentially tightening available inventories," MUFG said.

The prospects for gold and silver remained positive in 2026 with geopolitical tensions, concerns about the independence of the Fed and a lack of fiscal discipline in the U.S. likely playing major roles in sustaining investment inflows into gold, according to ANZ.

EMEA HEADLINES

China Imports to Help Lower U.K. Inflation to Target, BOE's Taylor Says

The U.K.'s annual rate of inflation is likely to fall to the Bank of England's 2% target by the middle of this year, aided by cheap imports from China and allowing for further cuts in borrowing costs, rate-setter Alan Taylor said Wednesday.

The Columbia University economics professor said there are signs that Chinese businesses facing high tariffs in the U.S. have sought and found new customers in the U.K. and other parts of Europe by lowering their prices.

BP Flags $5 Billion Write-Down in Low-Carbon Segment, Warns of Weak Oil-Trading

BP flagged a write-down of up to $5 billion in its gas and low-carbon energy segment and warned its oil-trading performance would be weak, as the latest energy major to forecast an earnings hit to cap a tough year for the industry.

The London-based energy company is in the early stages of a turnaround intended to reverse falling profits and boost its share price, which has come under pressure after its strategic misstep into low-carbon energy.

Audi Car Deliveries Fall as Demand Hit by Geopolitical and Economic Challenges

Audi reported a 2.9% drop in full-year car deliveries as the automaker echoed recent comments from German peers that competition in China and U.S. tariffs hit demand.

The brand-part of Volkswagen group-said Wednesday that deliveries fell to 1.62 million vehicles in 2025, led by a 5.0% decline in China and a 12.2% drop in North America.

Defense Company Czechoslovak Group Aims to Raise $873 Million in Amsterdam IPO

European defense company Czechoslovak Group said it plans to list on Euronext Amsterdam in coming weeks, and that it aims to raise 750 million euros ($873.3 million) as part of its initial public offering.

The Prague-based company, a key supplier of ammunition, is the latest arms maker to try to tap into a rally in European defense stocks amid a spending boom as the continent pushes to rearm. German industrial conglomerate Thyssenkrupp in October spun off its naval-defense business TKMS, and Franco-German defense group KNDS in December said it would list in Paris and Frankfurt in 2026.

GLOBAL NEWS

China's Trade Surplus Reaches Record, Defying Expectations of Tariff-Driven Slowdown

When President Trump returned to the White House last year, economists predicted new tariffs would stifle China's massive export machine.

Instead, China's trade surplus, the difference between its exports and imports, reached a record in 2025 at $1.19 trillion. Exports jumped 5.5% last year from 2024 in dollar-denominated terms, compared with 5.9% growth the prior year, China's customs agency reported Wednesday.

Wall Street Is Suddenly on the Defensive With the President

Wall Street thought it had an ally in Donald Trump. He's becoming more of an adversary.

The president largely delivered to investors last year, as his administration cut taxes, reduced spending and rolled back an aggressive tariff plan after it spooked markets.

Trump Administration Takes Aim at Home-Builder Stock Buybacks

For some in the Trump administration, buybacks have become a dirty word.

In an interview with The Wall Street Journal, President Trump's Federal Housing Finance Agency director, Bill Pulte, questioned repurchases made by home builders when discussing the administration's plans to lower housing costs.

Venezuela Frees Detained Americans in Slow Release of Political Prisoners

The Venezuelan regime released a handful of American prisoners on Tuesday, a step U.S. officials described as a positive move by the allies of the deposed authoritarian leader Nicolás Maduro.

The officials released few details about the American prisoners. Maduro, whom the U.S. ousted in a midnight incursion on the capital, Caracas, this month, has long used U.S. citizens as bargaining chips, whether innocent or guilty of the crimes, American officials have said in the past.

The Row Over South Korea's Push for a Native AI Model: Chinese Code

SEOUL-Last June, the South Korean government launched a competition to create a new independent AI model developed with Korean technology. A homegrown tool like that was critical to ensuring Korea's technological self-reliance in a world already dominated by U.S. and Chinese artificial intelligence.

It is proving to be easier said than done.

Venezuelan Opposition's Calls to Oust Maduro Aided Legal Case for Removal, Memo Says

Source: morningstar

Risk Warnings and Disclaimers

Add to Favorites

Isaac Bennett

Remarks of Officials

Daily News

Political

The Trump administration is set for critical talks with Danish and Greenlandic officials on Wednesday as President Donald Trump intensifies his campaign to bring Greenland under U.S. control.

Greenland's Foreign Minister, Vivian Motzfeldt, and her Danish counterpart, Lars Lokke Rasmussen, are scheduled to meet with U.S. Vice President JD Vance and Secretary of State Marco Rubio at the White House. The meeting follows President Trump’s recent declaration that anything less than U.S. sovereignty over the Arctic island would be "unacceptable."

Trump Demands Greenland for National Security

In a social media post on Wednesday, President Trump laid out his reasoning, tying the acquisition of Greenland directly to U.S. strategic interests.

"The United States needs Greenland for the purpose of National Security. It is vital for the Golden Dome that we are building," Trump stated on Truth Social. He argued that NATO's effectiveness would be significantly enhanced with the territory in American hands. "NATO should be leading the way for us to get it... Anything less than that is unacceptable."

Trump’s renewed focus on the mineral-rich island follows a U.S. military operation in Venezuela on January 3. His long-standing interest in acquiring Greenland has now escalated into a major diplomatic issue, alarming allies in Denmark, which is responsible for Greenland's defense. Danish Prime Minister Mette Frederiksen has warned that a U.S. attack would signal the end of the NATO alliance.

U.S. officials, including Vice President JD Vance and Secretary of State Marco Rubio, are set to lead talks regarding Greenland's future.

Denmark and Greenland Present a United Front

The high-stakes meeting comes just after Greenland's Prime Minister Jens-Frederik Nielsen and Danish Prime Minister Mette Frederiksen publicly stood together against Trump’s threats.

At a joint press conference in Copenhagen on Tuesday, Nielsen was unequivocal. He stated that if the self-governing Danish territory were forced to choose between the U.S. and Denmark, "we choose Denmark."

Frederiksen acknowledged the difficulty of resisting what she called "completely unacceptable pressure" from their closest ally. "But there is much to suggest that the hardest part is still ahead of us," she added.

Greenland's Prime Minister Jens-Frederik Nielsen and Danish Prime Minister Mette Frederiksen presented a united front against U.S. pressure at a press conference in Copenhagen.

Expert Analysis: NATO's Future at Risk

Analysts warn that the diplomatic crisis could have severe consequences for the trans-Atlantic alliance.

Ian Lesser, a distinguished fellow at the think tank GMF, described the stakes for the talks as "very high," cautioning that a failure to find a resolution "does not just threaten NATO cohesion, it threatens the future existence of the Alliance as we know it."

According to Lesser, the meeting could either establish a path for a negotiated settlement—potentially involving new European defense commitments for Greenland and preferential U.S. access to its resources—or it "could end in acrimony." The prospect of a public fallout recalls a contentious meeting in February last year where Trump and Vance engaged in a shouting match with Ukrainian President Volodymyr Zelenskyy on live television.

A 'Profound Crisis' with No Easy Fix

Carl Bildt, former prime minister of Sweden, expressed skepticism about a diplomatic breakthrough on Wednesday, calling the situation "a profound crisis." He pointed to a significant development: Vice President JD Vance taking the lead in the talks from Secretary of State Marco Rubio.

"It was scheduled to be with Secretary of State Marco Rubio, who has indicated a slightly milder approach, but JD Vance has, of course, been directly insulting towards Denmark and demanding very strange things," Bildt told CNBC. "I expect a fairly hard meeting. I don't expect any resolution."

Bildt, who co-chairs the European Council on Foreign Relations, referenced Vance's "rather extraordinary" analysis of Europe at the Munich Security Conference in February of the previous year, which he said aligned with the region's "extreme right." He concluded, "This is not the trans-Atlantic alliance we used to have."

What a 'Good Outcome' Could Look Like

Otto Svendsen, an associate fellow at the Center for Strategic and International Studies (CSIS), noted that U.S. threats have pushed Greenland and Denmark to set aside their own tensions. He said the White House meeting will reveal the administration's level of commitment to acquiring Greenland.

"A good outcome for the Danes and Greenlanders would be a statement that affirms Greenland's sovereignty and position within the Kingdom," Svendsen explained. "Anything short of that leaves the door open to continued threats and coercion."

In return for such an affirmation, Svendsen suggested the Danish and Greenlandic delegation might offer to revisit economic and security arrangements, including more favorable access for U.S. companies to Greenland's mining sector and increased Danish investment in Arctic security.

Last week, several European leaders, including the heads of France, Germany, and the United Kingdom, rallied in support of Greenland, asserting that Arctic security must be a collective effort. "Greenland belongs to its people," they wrote in a joint letter. "It is for Denmark and Greenland, and them only, to decide on matters concerning Denmark and Greenland."

Risk Warnings and Disclaimers

Add to Favorites

Kevin Morgan

Remarks of Officials

Economic

Central Bank

A senior Bank of England policymaker has called for further cuts to UK interest rates this year, citing a predicted sharp slowdown in inflation.

Alan Taylor, an external member of the Bank's Monetary Policy Committee (MPC), believes that cooling energy prices and cost-of-living measures from Rachel Reeves's autumn budget will help steer inflation back to its 2% target by the middle of 2026.

Based on this outlook, Taylor argues that borrowing costs should be lowered. "Interest rates should continue on a downward path, that is if my outlook continues to match up with the data, as it has done over the past year," he stated.

Drivers of Disinflation Point to Lower Rates

In a speech delivered in Singapore, Taylor outlined several factors that he expects will drive UK inflation down from its current rate of 3.2% to near the 2% target by mid-2026.

He noted that the impact of tax and administered price hikes will diminish in April. Furthermore, he highlighted key disinflationary pressures:

• Budget Measures: New policies from the budget are estimated to lower inflation by 0.5 percent.

• Food and Energy: Food inflation has already fallen significantly, and energy prices have stabilized at lower levels.

Taylor, a consistent advocate for rate cuts on the MPC, sees these developments as sufficient justification for reducing the Bank Rate from its current 3.75%.

Global Trade's Surprising Impact on UK Prices

Despite risks from Donald Trump's tariff policies and rising geopolitical tensions, Taylor presented an optimistic assessment of global trade's long-term trajectory. He argued that history shows a tendency for trade barriers to eventually fall.

Looking ahead, he suggested that AI technologies and the growth of developing nations could accelerate global trade. This trend, he said, should help keep long-term inflation low, including in Britain.

Taylor pointed out that the UK has already benefited from an influx of cheaper goods due to trade diversions caused by international tariff policies, which has helped ease domestic inflationary pressures. This phenomenon has been observed recently with a surge in Chinese imports to the UK.

Policy Normalization and Market Expectations

Taylor believes the cooling inflation trend is sustainable, especially with wage growth also slowing. "I now therefore expect monetary policy to normalise at neutral sooner rather than later," he said.

City investors appear to share this view, with financial markets currently pricing in at least one additional quarter-point interest rate cut this year.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites