April 08, 2025

“This week in financial markets got off to a volatile start yesterday as fresh tariff headlines kept investors on their toes. Eyes will be on the escalating trade war with China, and whether any deals begin to emerge.”

Tim Hallinan – Trading Director

USD

Tariff nerves continue to be the dominant topic across financial markets, leading to some twitchy trading yesterday as investors watched for clues on Trump’s plans. Risk sentiment enjoyed a very brief turnaround yesterday as some misleading headlines implying the possibility a 90-day pause hit the wires, but the White House was quick to bat these off as ‘fake news’. In the twenty minutes that this idea had gripped the market, though, the S&P 500 gained 8.5%. It ended the session flat. Trump then upped the ante by threatening an additional 50% tariff against China and an end to all negotiations if it did not back off with its 34% retaliatory tariff. He also threatened to veto a tariff bill that would limit his authority to unilaterally impose tariffs. In one small piece of good news for markets, he also said that negotiations with other countries will begin taking place immediately – this hope appears to have helped the risk-sensitive G10 (AUD, NZD, NOK, SEK) rebound slightly overnight. The dollar index has also recovered some ground over the past couple of days.

Today’s NFIB small business optimism figure for March naturally won’t capture the ‘Liberation Day’ surprise, but it might give some insight on the state of the economy going into the trade war. Regardless, although the usual FX relationships are beginning to normalise, currencies are still trading with little predictability right now

GBP

Sterling’s decline continued yesterday as the threat of an incoming trade war continues to bite. It sank to a fresh six-month low versus EUR and a one-month low against USD. This month’s 2.9% drop in GBP/EUR is significant for a cross that is rarely so volatile. Starmer has been calm so far about a potential response to tariffs from the UK, and he told a press conference yesterday that loosening the fiscal rules is unlikely to be their first reaction. Reeves won’t want to spook the gilt market with a rule change so early on, but she might need to change track if the UK economy begins to suffer. The UK data calendar is quiet until Friday’s GDP report, and in the meantime, it seems that any extra tariff nerves can push the pound lower.

EUR

The euro has held relatively steady so far this week, even as chaos emerges around it. The European Commission offered the US a ‘zero-for-zero’ tariff deal on industrial goods yesterday. The EU has so far taken a less bold response than China, and they are trying for a deal in the first instance before moving onto tariffs if necessary. With Trump narrowly opening the door to negotiated deals, the eurozone might be able to at least bring down its 20% tariff rate. Retaliation is firmly on the table, however, and Reuters claim to have seen a document proposing 25% tariffs on select goods to come into place next month, if necessary.

Markets

A headline suggesting that a 90-day tariff pause was on the cards turned US stocks positive after first dropping nearly 5%, before the White House’s dismissal as ‘fake news’ promptly put them back into the red. The S&P 500 ended the day only a touch lower.

Main Economic Events (All Times CET)

12:00pm: US NFIB Small Business Index

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