## United States
The ongoing trade war continues to unsettle the capital markets. Initially, the US corrected its tariff figures, indicating an increase from 125% to 145% on Chinese goods. In retaliation, China has increased its tariffs on US goods to 125%. Although the demand sensitivity due to price changes (elasticity) fluctuates across different products, many goods now seem uncompetitive, rendering further tariff hikes somewhat redundant. The equity markets responded with mixed outcomes. In Asia Pacific, markets showed varied performances with rises in Hong Kong, mainland China, Taiwan, and India. However, mainland China stocks listed in Hong Kong have fallen by 7.3% this week. The Hang Seng, Taiwan’s composite, and Singapore have also seen declines of over 8% within the week. On the other hand, Japan’s Topix has seen a smaller decline of less than 1%. Europe’s Stoxx 600 has fallen by 1.2% today and nearly 3% for the week, following an 8.4% drop last week. Interestingly, US index futures have remained relatively unchanged, with the S&P 500 rising by approximately 3.5% for the week and the Nasdaq gaining over 5%.
Bond markets are displaying mixed results today. The US 10-year yield dropped by two basis points to approximately 4.40%, marking a 22 basis point increase over the week. Stronger-than-expected UK GDP figures might be affecting Gilts, with the 10-year yield rising by four basis points today and seven basis points for the week. Eurozone benchmark 10-year yields appear narrowly mixed. In Japan, the 10-year JGB yield fell by five basis points, reducing this week’s gains to nearly 20 basis points.
The dollar is under significant pressure due to these dynamics. While the dollar’s decline is stabilizing ahead of North America’s market open, approximately half of the G10 currencies have gained over 1% against it today. The Swiss franc, in particular, has led this week’s movement with a 5% gain, trailed by the New Zealand dollar with a 3.7% increase, just ahead of the euro’s 3.7% rise. Gold has surged to a new record high near $3,230, gaining about 6.3% this week. May WTI is stable around $60 a barrel, down roughly 2.75% this week after a 10.6% decline last week.
Furthermore, the US dollar has faced significant hurdles. The Dollar Index saw a nearly 2% drop yesterday, reaching a new yearly low at 100.70. Continued selling has led to another 1.6% decrease, bringing it to nearly 99.20, the lowest point in three years. Despite recovery efforts, the dollar remains about three standard deviations below its 20-day moving average.
Inflation concerns persist, with the US March Producer Price Index (PPI) expected to show an increase in both headline and core rates to 3.3% and 3.6%, respectively. The tariff issues contribute to this, yet recession fears and OPEC+’s rapid reduction of production cuts have led to a decline in oil prices. May WTI dropped almost 24% from an early April high of above $72 to a low of approximately $55 this Wednesday. Although this could potentially temper some inflation expectations, it has yet to impact the average retail price of US gasoline, which has slightly increased since last month.
Today will also see the release of the preliminary April University of Michigan consumer survey. Consumer confidence likely continues to wane, although inflation expectations may have risen. Market-based measures, like breakevens, have remained relatively stable. The two-year breakeven is elevated at around 3.10%, showing a decrease of about 10 basis points since February’s end. Meanwhile, the 10-year breakeven is approximately 2.16%, down by about 24 basis points.
## Eurozone
The euro exhibited strong performance in North American trading, breaking past last week’s high of $1.1145 and the 2024 high of $1.1215. Yesterday it climbed to $1.1240 and surged further to nearly $1.1475 today, a three-year high, before pulling back to around $1.1360. In the longer-term perspective, if Purchasing Power Parity (PPP) is considered as the level currencies gravitate around over time, the OECD’s PPP estimate suggests a “fair value” for the euro at $1.46. Other levels currencies tend to gravitate around are long-run moving averages. The euro surpassed the 10-year moving average (120 months) near $1.1170 for the first time since 2021. The 20-year moving average (240 months) is approximately $1.2260.
## United Kingdom
The British pound has risen for the third consecutive session, reaching a new high for the week, just 4/100ths of a cent shy of $1.30. It reached the 50% retracement of last week’s decline (from around $1.3205) to this week’s low of $1.2710. Today, it rose to nearly $1.3135, breaking the 61.8% retracement level near $1.3015. During late European morning turnover, sterling settled around $1.3080. Last week’s high was near $1.32. Although sterling’s gains lag the euro, Swiss franc, and yen, stronger-than-expected UK February GDP figures may have provided some support. The UK reported a 0.5% GDP increase for February, exceeding the 0.1% median forecast from Bloomberg’s survey, which had anticipated offsetting the January contraction. Industrial output increased by 1.5%, with manufacturing growing by 2.2%. The services sector expanded by 0.3%, and construction rebounded with a 0.4% increase. However, the trade deficit widened to approximately GBP1.96 billion from a GBP301 million surplus due to slowed gold exports. Excluding precious metals, the UK reported a GBP783 million deficit from a GBP537 million surplus in January.
## China
Following a more than 1% decline in the greenback on Wednesday, the US dollar fell by another 0.45% against the offshore yuan yesterday, reaching a three-day low slightly below CNH7.30 before stabilizing. It marked the 61.8% retracement from the April 4 low (~CNH7.2395) to this week’s high on April 8 (~CNH7.4290). It further declined to approximately CNH7.29 today before rebounding to CNH7.2265. Despite these fluctuations, the offshore yuan has decreased for the fourth consecutive week, albeit with a modest 0.35% loss compared to anticipated larger devaluation concerns. Beijing seeks to maintain its export competitiveness amidst US tariffs, which the US clarified yesterday are now at 145%. China earlier announced a tariff increase on US goods to 125%, effective tomorrow. Against the onshore yuan, the greenback decreased by about 0.4%, undoing the gains from the past two days and ending a four-day advance, remaining practically flat today. The People’s Bank of China (PBOC) somewhat aligned with market trends and set the dollar’s fix lower for the first time in seven sessions (CNY7.2087 vs. CNH7.2092 yesterday).
## Japan
The US dollar faced resistance this week around JPY148.00, trading down to nearly JPY144.00 to test Wednesday’s low. Yesterday marked the third consecutive session in which the dollar fluctuated over 1% on a settlement basis, closing below JPY145 for the first time in six months. Today, it further declined to almost JPY142.00, the lowest level since early last October. The next chart support area lies around JPY139.50-JPY140. Implied three-month volatility exceeded 14.4%, marking the highest close since the pandemic’s early days.
## Canada
Yesterday, the US dollar was sold to reach a marginal new low for the year near CAD1.3950. It fell through the 200-day moving average (~CAD1.40) for the first time since last October, nearly reaching the 61.8% retracement of the rally from last September’s low (~CAD1.3420). Today, it dropped further to nearly CAD1.3880, marking its lowest level since last November. The three standard deviation mark from the 20-day moving average lies near CAD1.3865, with the next chart support in the CAD1.3800-CAD1.3825 area.
## Australia
Following a bullish key reversal on Wednesday, follow-through buying lifted the Australian dollar to nearly $0.6250 yesterday, achieving a new high for the week and testing the 20-day moving average. Although it pulled back during late turnover, it still settled above $0.6200 for the first time in five sessions. Today, the Australian dollar is experiencing difficulty gaining traction against the US dollar but has risen over 3% throughout the week. The New Zealand dollar also demonstrated an impressive recovery, climbing nearly 4% this week. It exceeded the 61.8% retracement of its previous downward trend and settled above its 20-day moving average (~$0.5715). Yesterday, it faced resistance near $0.5765 but overcame it today, rising to approximately $0.5815.
## Mexico
On Wednesday, the peso posted a bearish outside down day against the dollar. However, follow-through dollar selling was absent yesterday. Instead, due to the risk-off mood, the greenback recovered from around MXN20.17 on Wednesday to MXN20.5750 yesterday. Today, it reached the next technical target above MXN20.62, but has since pulled back to below MXN20.47 in the European morning. Mexico’s economy remains weak. Recall its 0.6% contraction in Q4 2024. It has shown little improvement early this year. February industrial production figures, to be released today, may indicate a 0.1% rise following a 0.4% decline in January. However, the year-over-year rate may have decreased further (-3.8% vs. -2.9%), and manufacturing output may have contracted by 2.4% year-over-year, down from a -0.8% downturn in January.
