April 14, 2025

“More confusion over tariffs at the weekend have kept the dollar pinned down this morning. The focus this week will be on tariff negotiations, UK inflation, and an ECB decision.”

Tim Hallinan – Trading Director

USD

With the latest tariff news only sowing more confusion, the dollar index is on the backfoot again this morning and heading back toward Friday’s three-year low. Last week’s volatility was extreme and comparable with the likes of Covid and 2008, as the market sold dollars at an unprecedented pace and discussions centred around a ‘crisis of confidence’ and the EM-like inverse relationship between the dollar and yields. The latest development was the discovery of exemptions to reciprocal tariffs on smartphones and some other electronic exports, which then turned out to be ‘temporary’ and distinct from the other tariffs only because the White House is doing a study on semiconductor supply chains. This follows reports that Apple had flown out more than one million iPhones from India to beat the incoming tariffs. Things like this will only make the market nervous that businesses cannot plan or invest during such high uncertainty. Friday’s UoM consumer sentiment data was stark – 1-year inflation expectations shot up to 6.7% (the highest since 1981) and the overall index hit a three-year low.

The diary is quiet today except for a speech from the Fed’s Waller, who might be forced to change his mind on the inflationary impact of tariffs being temporary. Later in the week we get retail sales data and a speech from Chair Powell.

GBP

For sterling, last week’s chaos was great for GBP/USD and bad for GBP/EUR. The pound is trading at a six-month high versus the dollar and an 18-month low against the euro. The trend of a weakening dollar and a euro safe haven dominated above all else, and the impressive 0.5% monthly GDP growth print for February was lost in the tariff-led repricing in FX. The data this week will be critical for the Bank of England, though, with tomorrow’s ex-bonus wage growth print expected steady at 6.0%, and Wednesday’s CPI inflation set to cool slightly to 2.7%.

EUR

The euro peaked at a three-year high in the top end of the 1.11-1.15 range on Friday before cooling off, and it is back at the 1.14 handle this morning. EUR/USD is now up 10% year-to-date. A good proportion of that was priced in last month when Germany pushed through a huge fiscal spending plan, but the move in April has mostly been the product of investors looking for alternatives to the dollar, of which the euro has been a strong choice. The ECB decision on Thursday is the main event for the eurozone this week. A cut this month had been considered a coin flip at one point, but the recent chaos and the prospect of a trade war have markets almost certain on another 25bps rate cut.

Markets

US equities bounced back on Friday with near 2% gains, and stocks across Europe and North America are expected to open higher this morning.

Main Economic Events (All Times CET)

5:00pm: NY Fed 1-Year Inflation Expectations

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