April 10, 2025

“Yet another spike in volatility emerged yesterday as Trump reversed a significant proportion of his global tariff regime after they were in place for less than a day. The likes of NOK and AUD bounced back, and the safe haven JPY and CHF shed some gains, but the dollar continues to struggle from damaged confidence.”

Tim Hallinan – Trading Director

USD

With Trump facing an unsustainable squeeze from Wall St, the bond market, and his own party, he caved to the pressure last night and announced a delay to the higher rate ‘reciprocal’ tariffs for 90 days for those who have not retaliated. Treasury Secretary Bessent suggested in an interview yesterday that Trump’s back-and-forth was a stroke of genius intended to kick off negotiations on a strong footing, but the president himself admitted that the idea for a pause had only come together over the past couple of days and that a key reason had been because ‘people were jumping a bit out of line’.

Needless to say, investors were quite pleased to see that tariffs had become transactional again, and that the ‘market guardrail’ or the ‘Trump put’ – the power of a market downturn to change his course – is still somewhat intact. The equity markets were euphoric, driving single-day gains not seen in decades, and risk-sensitive currencies rebounded strongly while the safe havens shed some of their gains. NOK, CAD, and NZD all gained well above 1%, and AUD rallied 3.2% – its best day in 15 years. The dollar, however, enjoyed only a limited recovery against the euro and is broadly weaker this morning. For now at least, it looks like the damage has been done to the dollar. The lower rate 10% blanket tariff remains, and it may take some time for investors to confidently return to the US.

As JP Morgan has described it, this is ‘merely the end of the beginning’. It is now evidently a bad idea to assume that the uncertainty is ever resolved, and the trade war with China is still ongoing. The data may play a role today, with this afternoon’s CPI inflation print expected to fall from 2.8% to 2.6%.

GBP

Sterling has rebounded around 1% from this week’s lows against both the dollar and the euro, but it continues to lag behind. The spotlight has returned to the UK’s fiscal position over the last few days, as a gilt selloff has lifted long-term borrowing costs back to their highest levels since the 90s. This has been a recurring issue for sterling that has increased its negative correlation with market risk. Combined with any further hits to growth from the trade uncertainty, tax rises might become a necessity in the October budget.

EUR

EUR/USD dipped as markets briefly bought dollars following the tariff reversal yesterday, but it is knocking on the door of 1.10 once again this morning. While Trump’s backtracking is good for sentiment, it has not generated a material unwind of some of the dollar outflows. The damage to confidence in the greenback is more long-lasting than that, and the euro remains bid for now. In Germany, the CDU/CSU and the SPD are on the cusp of forming a coalition government following February’s election. That will be good timing ahead of trade negotiations in the US.

Markets

Stocks staged an historic rally following Trump’s tariff pause announcement last night. The Nasdaq surged 12% on the day in its biggest gain since 2001, while the S&P 500’s 9.5% move was the strongest since 2008. This followed into the Asian session, with the Nikkei jumping 9%, and futures are pointing to significant gains in Europe at the open this morning.

Main Economic Events (All Times CET)

8:00am: Norway CPI
2:30pm: US CPI & Unemployment Claims

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