April 07, 2025

“The tariff fallout has continued into this week, as markets brace for huge losses in the stock markets and riskier currencies. The franc and the yen have seen significant inflows through safe haven demand, while the likes of AUD and NOK have weakened rapidly.”

Sam Cornford – Head of Trading

USD

The market is in full risk-off mode this morning, as Trump’s huge ‘reciprocal’ tariffs have become even more real over the weekend. China has swiftly pledged to retaliate with its own 34% tariffs on the US, and the Trump administration doubled down on its strategy to reduce the US’ trade deficits during its media rounds. On the crisis-level bloodbath in the equity markets, Trump said that ‘I don’t want anything to go down, but sometimes you have to take medicine to fix something’ and that foreign governments would have to pay ‘a lot of money’ to lift the tariffs. Remember that investors were relying on any market weakness to be a check on Trump, because it might prompt him to reverse course. Now, they are looking an unrestrained president bent on reshaping world trade.

Risk assets are in the red across the board – US equity futures are signalling another round >5% drops at the open, the two-year Treasury yield is now below 3.5% (five Fed cuts are now fully priced), and there have been some historic depreciations in risk-sensitive FX. The 4.6% fall in AUD/USD on Friday was the Aussie’s worst single day since 2008, while USD/NOK is up 6.2% in two days. The Swiss franc has been the clear winner and is up 1.6% only this morning, while the dollar seems to have fallen around the middle of the pack, losing ground to the likes of CHF, JPY, and EUR but still preferred to the Nordics and AUD.

The data calendar obviously takes on less relevance while markets are panicking about a possible recession triggered by the White House. Non-farm payrolls were very strong on Friday at 228K, but that offers little hope to investors looking ahead at a trade war. CPI is the main event this week on Thursday, where the consensus is looking for 2.6%, down from 2.8% in February.

GBP

Sterling has not performed well over the past couple of days. It is now lower versus the dollar than it was before the ‘Liberation Day’ announcements, and GBP/EUR has slumped to its lowest level since August last year. The UK’s lower overall exposure to the direct impact of tariffs appears to be little solace to the market, where risk-off instincts have kicked in to sell the pound. The euro is preferable to many as a safe haven because it is more liquid and is underpinned by a larger economy. Friday’s GDP data is expected to show a -0.1% contraction in February.

EUR

EUR/USD has come back to earth after its spike to near 1.12 on Thursday, but it is holding on to the 1.10 mark this morning. While there is some data on retail sales and investor confidence today, the obvious focus for markets is on how European leaders do in response to the blanket 20% tariff heading their way this week. They appear to be taking a calm approach for now and will look to reason with the US first, leaving sharp retaliation as a last resort.

Markets

After losing $5tn in market cap in the space of two days last week, futures are pointing to another big selloff for the S&P 500 in today’s open. S&P 500 futures are down 5.0%, and Nasdaq futures have slumped 5.8%, after Japan’s Nikkei suffered a 7.8% fall overnight. European indexes are looking similar, and the VIX is up to its highest since August’s carry trade spike.

Main Economic Events (All Times CET)

10:30am: Eurozone Sentix Investor Confidence
11:00am: Eurozone Retail Sales

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