By Tigris Asset Management | May 2025
The April 2025 CPI and US-China tariff truce offered some optimism, but the signals remain far from clear. While equity markets extended gains, volatility fell, and risk assets rallied, deeper structural questions remain. Is this a moment of genuine momentum — or just another pause in a confusing macro narrative?
Inflation: Softer But Sticky
The April 2025 CPI print revealed inflation dynamics that were nuanced at best:
- Headline CPI rose 0.2% m/m and 2.3% y/y
- Core inflation held at 2.8% y/y
- Services inflation remained sticky at 3.7% y/y
- Goods prices fell 0.2% y/y, dragged lower by energy
The key takeaway: while inflation is not accelerating, it’s also not falling decisively. Services remain persistently hot, goods are cooling, and energy distortions continue. The Fed is unlikely to change its stance based on this alone — hence the muted response in rates markets.
Equities Rise, But Volatility Drops Further
US equities continued to grind higher, led by a 5.6% jump in Nvidia after it announced AI chip sales to Saudi firm Humain. Boeing also gained on the back of resumed deliveries to China. These moves reflect a broader “risk-on” response to the CPI print and to news of a surprise $1 trillion investment pledge from Saudi Arabia, though official signage in Riyadh hinted the real number may still be closer to $300 billion.
Volatility continues to compress. EURUSD options implied volatility is back to the 7% handle, suggesting the market is betting on consolidation, not chaos — at least for now.
Tariff Truce: A Dollar Smile Moment
The 90-day tariff pause between the US and China has sparked stronger risk sentiment. Equities rose, and recession odds narrowed. But the effects of this trade détente may be stronger outside the U.S. — boosting global trade more than U.S. domestic demand.
That puts the dollar back in the middle of the “Dollar Smile” framework — not weak enough to warrant safe-haven flows, and not strong enough to reflect booming growth.
USDCNH dipped toward 7.18, driven by hedge fund selling, but corporate buying provided support. The range remains anchored between 7.15–7.25, with RHS dividend flows balanced by LHS exporter demand.
FX: USD Mixed, Correlations Break Down
The dollar’s move lagged equities. EURUSD’s rally paused, even as USD softened across the board. Its correlation with rate differentials and US equities broke down, another sign of macro uncertainty.
- USDJPY moved lower, tracking the broad dollar. Support lies at 146/146.50; resistance at 149.28 and 151.25.
- GBPUSD rallied near 1% after BoE’s Pill flagged upside inflation risk.
- EURUSD remains stuck in consolidation; we expect the pair to trade between 1.1100–1.1400 in coming sessions.
What to Watch Next
While markets absorb the CPI and tariff news, focus shifts to incoming data:
- Germany CPI: Will European inflation echo the U.S. trend?
- US MBA Mortgage Applications: A proxy for rate sensitivity and housing resilience
- Canada Building Permits: Insights into North American real asset strength
But the real catalyst may come Thursday with U.S. Retail Sales and Jobless Claims — potential indicators for whether consumer strength is durable or fading.
Conclusion: Market Relief, But Unresolved Signals
Markets cheered the softer inflation and trade truce headlines. But investors should remain cautious. The April 2025 CPI and US-China tariff truce have not provided clear direction. Growth remains uneven, inflation is stubborn, and geopolitical signaling is as opaque as ever.
Stay diversified. Stay cautious. And most importantly — stay focused on the next layer of data.
For more insights, explore US CPI data, Federal Reserve policy, and Saudi investment developments. Or visit our full blog archive.
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