United States
President Trump’s trade policy with China continues to be a topic of interest, with reports of trade discussions being denied by Beijing. Meanwhile, the US economy reported a slight contraction in Q1, with the Treasury Secretary suggesting that the embargo has impacted China’s economy more substantially. Despite this, China’s Commerce Ministry hinted at the possibility of evaluating US trade overtures, indicating a potential change in US tactics, often described as retreating without admitting to it. In the US, calls from Trump and Treasury Secretary Bessent for lower interest rates are unlikely to gain traction at the Federal Reserve, given the robust jobs report. There’s little motivation for the Fed to cut rates or even signal such intentions. As the week unfolds, the Bank of England is anticipated to implement a quarter-point cut, while Sweden and Norway’s central banks are expected to maintain their positions. Brazil, having enacted three consecutive 100 bp hikes, might opt for a half-point increase, bringing the Selic rate to 14.50%. Improvements in US employment data and potential future rate cuts in Q3 rather than Q2 are supporting a stronger dollar. Still, the US’s uncertain trade policy generates confusion. Trump’s “pivoting” tactics—whether in relations with China or concerning Federal Reserve Chair Powell—are seen by many as strategic retreats. They aim to wait for further reductions in tariff threats. Economic data following the distorted Q1 GDP focuses now on Q2, starting with the employment figures showing a decent 177k rise in nonfarm payrolls, exceeding the median of Bloomberg’s survey. While downward revisions affected February and March data, the overall impression remains positive, keeping the economy in a stable condition with a lowered probability of a June rate cut.
Eurozone
The euro has been bolstered by the US dollar’s decline, which reflects a larger retrenchment of dollar positions and increased dollar hedging. This has amplified gains within the eurozone currency, despite President Trump’s “pivot” on issues like Federal Reserve policies and US tariff threats, largely perceived as negotiating tactics. However, Europe must prepare for potential tariffs across several sectors as a precaution. Upcoming data, such as the March PPI and retail sales, holds less importance following last week’s GDP estimate. However, March reports from Germany on factory orders and industrial production are noteworthy. The euro recently experienced a rise from early February lows to nearly $1.1575 in late April. Even when a correction seemed likely, strong buyers emerged, keeping the momentum alive. Resistance is expected in the $1.1400-25 range. A shift below $1.1260 could trigger further corrections.
United Kingdom
Sterling has benefited from the US dollar’s unwind more so than from domestic economic optimism. Continuing delays on reciprocal tariffs, which affect the EU more significantly until July, currently level the playing field. This week’s highlight is the Bank of England meeting where the market anticipates a quarter-point rate cut, equally forecasted within swaps. GDP growth forecasts might adjust but are currently expected to fall slightly to 0.8% this year. Inflation is projected to rise to 3.5% this year before tapering back to 2.0% by 2027. Sterling saw recent highs near $1.3445, but without heavy follow-through selling, prices remain near session lows.
China
China continues to showcase resilience against the US dollar by maintaining currency stability, which counters any US competitive edge from a weaker dollar. The key issue ahead is how well domestic demand can compensate for any reduced US demand and lost production relocated to other countries. April’s trade data will be closely monitored, with early signs of China’s rejection of some US goods, finding alternative suppliers. Alleviating any reliance on US products while diversifying import sources could earn China goodwill. The IMF has revised China’s growth down to 4.0% from 4.5%. Recently, the dollar sold off against the offshore yuan, closing near the 200-day moving average, suggesting the potential for significant adjustments when Chinese markets reopen.
Japan
Japan is seeing an unwinding of short yen positions and changes in the exchange rate correlations with the US 10-year yield. March labor earnings and household spending data are focal points, with inflation-adjusted earnings remaining down year-over-year. The country faces challenges related to demographic shifts and cultural consumption patterns. Last week, the Bank of Japan set a new growth forecast, indicating a downward revision in growth and inflation. The dollar recently rebounded sharply, reaching near JPY145 after a US rate increase, with expectations that no BOJ hikes will occur this year.
Canada
Mark Carney’s recent political ascendancy in Canada signifies potential diversification away from US dependency, with possible stronger European ties. Economic reports this week include trade data and the April IVEY report, which might capture concerns from businesses amid shifting US tariffs. The Canadian labor market showed initial weakness in early 2025, experiencing significant full-time job losses. Although prospects for a rate cut at the forthcoming central bank meeting are low, inflation and economic conditions may influence future decisions.
Australia
A political victory for Prime Minister Albanese and the Labor party seems anticipated, with potential easing in economic activity and inflation. Australia values its US relations but faces challenges amid US-led pressures to choose economic allies carefully, especially given existing free trade and security ties with the US. Notably, optimism surrounding possible US-China trade talks had a positive effect on the Australian dollar, hitting highs near $0.6470 over the weekend. The Reserve Bank may pursue a 25 bp rate cut, said to be encouraged by recent household spending trends and inflation data.
Mexico
Despite US trade policy volatility, the Mexican peso has shown resilience, reflecting a 6.0% increase against the dollar this year with attractive interest returns. Its variance aligns strongly with the S&P 500, showcasing close market performance ties. Mexico’s economic data focus will include April CPI, expected to stay within target ranges. The central bank could enact another 50 bp cut soon, especially given the peso’s strength. Auto production statistics suggest reliance on the export model, although excess capacity remains a discussion point. Set within a narrow exchange range recently, signals suggest this might serve as a base pending further developments.
