United States
The temporary relief from the trade conflict tensions has faded quickly, with new developments adding to the market’s anxiety. China’s actions against Boeing and the U.S. requirement for Nvidia to obtain export licenses for its H20 chip have reignited concerns. ASML’s disappointing orders and results have not helped in easing these worries. While the U.S. celebrates countries seeking tariff relief, the EU has been less optimistic about trade talks, and remarks from BOJ’s Ueda suggest a potential cut in Japan’s growth forecast for the year. The U.S. Dollar is broadly weaker today, with the Swiss Franc leading G10 currencies, and emerging market currencies, including the Chinese yuan, showing gains. China’s stronger-than-expected Q1 growth still leaves some skepticism. Asian markets and Europe’s Stoxx 600 are down for the first time this week, along with U.S. index futures, particularly the Nasdaq. The 10-year Japanese Government Bond yield dropped nearly 10 basis points to around 1.25%. European benchmark yields have also dipped, and the U.S. 10-year Treasury yield holds steady around 4.34%, which is lower than last Friday’s peak near 4.60%. Gold has surged to a record near $3318, while WTI crude oil is firm, recovering from a dip below $60 earlier this week and nearing yesterday’s high of about $61.60.
Eurozone
The euro remains bound within last Friday’s trading range of approximately $1.1190-$1.1475, having recovered from yesterday’s decline to around $1.1265 but still below $1.1400. The eurozone reported a February current account surplus of 34.3 billion euros. For the first two months of 2025, the surplus stands at 75.7 billion euros compared to 80 billion euros in January-February 2024 and nearly 18 billion euros for the same period in 2023. Attention now turns to tomorrow’s ECB meeting. The stronger euro, declining oil prices, and adverse effects of U.S. tariffs—staying high at 10%—have increased expectations for a rate cut. The market anticipates three cuts this year with roughly a 40% chance of another. The current deposit rate is set to reach 2.25%, and the terminal rate is projected between 1.50% and 1.75%. The EU has signaled limited progress in trade negotiations with the U.S., with most U.S. tariffs on the EU remaining in place.
United Kingdom
Sterling has held up better against the dollar than the euro over the past two sessions. Recent developments in the euro-pound cross have contributed to sterling’s strength. After a period of euro appreciation from April 3 to April 11, sterling has made gains, reaching up to $1.33 as the dollar weakens generally. Sterling has now extended its advance for the seventh day running. Although today’s softer-than-expected CPI has weighed on sterling somewhat, it continues to push upward. For March, the U.K. CPI showed a 0.3% rise, translating to a Q1 increase at an annualized rate of about 2.4%—the same as in Q1 2024. However, core inflation has slowed, fueling market confidence in two more rate cuts this year, including a quarter-point next month.
China
The U.S. dollar experienced a recovery against the offshore yuan, moving toward its weekend high near CNH7.3260. As the heavier dollar tone has abated, the yuan has managed to return to approximately CNH7.3120. Some speculate on a possible devaluation of the yuan to counteract U.S. tariffs, though official actions thus far have remained conservative. The PBOC’s daily fix has shown increased flexibility since late March, reflecting only a minor increase. China reported quarterly economy growth of 1.2% and annualized growth of 5.4%, with March indicating stronger performance for retail sales and industrial output, despite continued contraction in property investment and house prices. The employment rate has shown improvement, with a surveyed jobless rate of 5.2%, down from 5.4%. Economists foresee the PBOC cutting rates alongside reserve requirements, coupled with potential fiscal support as the trade war continues to impact growth.
Japan
Despite a five-basis-point drop in U.S. 10-year yields, the dollar held steady against the yen. Commentary from BOJ Governor Ueda could indicate forthcoming cuts to growth forecasts due to U.S. tariffs. March trade figures for Japan will be reported shortly, with expectations of a slight deterioration from February’s JPY590.5 billion surplus. Though Japan’s trade balance often improves in March, doubts remain as it has not reported an annual surplus since 2020. Surges in exports to the U.S. may have influenced February’s figures, supported by companies bolstering U.S. inventories. Japan’s U.S. trade surplus grew nearly 30% year-over-year for February, driven by a 14% increase in auto shipments.
Canada
The U.S. dollar reversed a four-day decline against the Canadian dollar. After bottoming out on Monday near CAD1.3830, it climbed to nearly CAD1.3980 yesterday before retreating to around CAD1.39. Despite upcoming Canadian elections, rate cut speculation persists in the swaps market. Recent factors like the strength of the Canadian dollar, poor March jobs data, and a softer CPI keep rate cut conversations active. The Bank of Canada’s next meeting on June 4 holds significant interest, with an 80% chance of a cut priced in. Further, Prime Minister Carney recently rescinded a 25% retaliatory tariff on U.S.-made vehicles, signaling ongoing discussions that impact economic forecasts.
Australia
The Australian dollar has mounted a recovery from last week’s five-year low of $0.5915, rallying about 8% against the U.S. dollar. Nearing the upper trading range established since last December, some profit-taking has ensued. The imminent release of March’s employment data will likely influence forthcoming central bank decisions, especially given the low bar set for a rate cut next month. February saw significant job losses, and unemployment rates could edge higher. This data could further bolster a case for monetary policy adjustments.
Mexico
The greenback staged a key downside reversal last week but saw selling continue over the past two sessions, reaching below MXN19.93. Support has emerged slightly above the 200-day moving average, with the price action suggesting a near-term floor may have formed. News of a U.S. tariff of 21% on Mexican tomatoes contributed to the dollar’s recovery against the peso. Mexico currently accounts for a significant share of U.S. tomato consumption, and the tariff could influence near-term market behavior. The dollar’s potential upside could extend toward MXN20.30 as the market digests these developments in the face of increased economic tension.
