### United States
The US dollar began the new week with a firmer stance, with the dollar-bloc currencies and Scandinavian currencies being the weakest. Meanwhile, Sterling and the Euro showed little change. The US 10-year yield’s continued drop has led to nearly a 0.5% uptick in the yen. Emerging market currencies presented a mixed picture, with several Asian currencies, including the Chinese yuan, trading higher. Additionally, the Turkish lira showed some strength after a nearly 4% decline over the past two weeks. The Russian ruble, however, softened likely due to US President Trump’s threats of secondary tariffs on Russian oil if it doesn’t conform to a ceasefire agreement with Ukraine. Equities are feeling the pressure from the US tariff offensive; Japan’s Nikkei 225, Taiwan’s Taiex, and South Korea’s Kospi have all dropped significantly, with the latter experiencing a 3% decline. In other markets, European benchmark rates dropped by 2-4 basis points, while the 10-year US Treasury yield dipped below 4.20%, a level it only settled below once since last December. Gold reached a new record high near $3128, compared to its settlement around $3011 a week ago. May WTI is trading within a tight range, slightly below $70.
Three significant elements are on the horizon for the US this week. Firstly, the reciprocal tariffs threatened for April 2nd have hinted at some flexibility not seen with the auto tariffs, as President Trump suggested possible exemptions. Nonetheless, sectoral tariffs, including those on lumber, pharmaceuticals, copper, and semiconductor chips, continue to be a threat, though their timing and scope remain unclear. Secondly, capital flows seem to be largely a result of an unwinding of record European purchases of US equities from the previous year. This reflux of capital is adding pressure, with some flowing into Treasuries. Lastly, the labor market report is a critical focus this week, particularly the monthly jobs report. There is a growing expectation of deterioration in the labor market, which may drive the Fed back to easing. The unemployment rate may tick up, as it was between 4.0% and 4.2% in the later half of 2024.
### Eurozone
The Euro showed a modest rebound, moving from its downward trend of $1.0955 to about $1.0735, bouncing back to a $1.0850 settlement, marking its highest for the week. The Euro tested resistance at last week’s high of $1.0860, with upcoming data potentially influencing its trajectory. The preliminary estimate for March’s CPI is due, following reports from France, Spain, and upcoming reports from Germany and Italy. Yet, more pressing than minor shifts in inflation data is the broader geopolitical and economic shockwave. Russia’s expanded aggression in Ukraine and the ongoing tensions within the US trade relationships contribute to a multifaceted shock. A significant development involves the US interest in owning Greenland, despite Denmark’s NATO membership, which paints a broader picture of strategic and territorial ambitions, exerting pressure across the Eurozone.
### United Kingdom
Sterling struggled last week near $1.30, and although it appeared poised for a downturn, pullbacks have been met with buying. It continues to trade within last weekend’s range of $1.2925-$1.2970. The currency’s future course will depend on breaking through $1.2860 to confirm a potential shift. There’s a quiet week ahead in terms of UK market-moving data, though consumer credit and mortgage reports could offer some insight. The upcoming final March PMI data and new car registration figures could prove revealing, as new registrations have been on a year-over-year slide for five months.
### China
The dollar’s recent recovery against the yuan stalled last week near CNH7.2825, as the currency settled around CNH7.2700. As Beijing prepares to retaliate against prospective US tariffs set for April 2, tensions remain elevated. In the midst of this diplomatic strain, China reported a slight improvement in its March PMI figures, with the manufacturing PMI rising from 50.2 to 50.5, and continuing modest growth in the non-manufacturing and composite PMIs. Over the weekend, China announced a CNY500 billion capital injection into four major banks, reinforcing a strategy focused on internal stability amid global tensions.
### Japan
The yen benefitted from a backdrop of declining US rates, with the dollar falling from a peak of JPY151.20 to JPY148.70. Japan’s recent industrial production figures, showing 2.5% growth in February, underscore a recovery, contrasting with the revised January retail sales data. Looking forward, sentiment from the upcoming Tankan Survey and its implications for trade and capex could further influence market dynamics in Japan.
### Canada
The US dollar’s brief recovery against the Canadian dollar has resulted in a rise above CAD1.4350, with room to move towards CAD1.4550 within this month’s broader range. As Canadian economic data trickles in this week, including merchandise trade and jobs data, potential risks remain from looming tariffs on steel, aluminum, autos, and additional sectors. The Canadian economy, which averaged about 2.4% growth last year, risks a downturn with these new pressures, despite pre-existing expectations of moderation to approximately 1.5% growth.
### Australia
The Australian dollar experienced a slight sell-off, reaching its lowest levels since March 5, within a largely stable range over two months. Anticipation surrounds the Reserve Bank of Australia’s meeting, with a strong likelihood of maintaining its current rate of 4.1%. Australia’s fiscal policy loosening ahead of a May 3 election and gradual market adjustments suggest a cautious outlook, despite no immediate urgency to alter the current approach.
### Mexico
The peso faces challenges from aggressive monetary policy actions and broader economic uncertainties. The Bank of Mexico’s recent interest rate cut plus potential further easing emphasizes this dovish stance. Mexico, like Canada, stands at the forefront of potential US shocks. The peso could weaken further if the currency moves beyond MXN20.55, eyeing a possible route to MXN21.00, amid evolving global economic conditions.
