April 15, 2025

“The market has found some calm this week, but the dollar is struggling to regain any of the ground lost this month. USD/CAD will be a key pair over the next few days, as markets digest the incoming tariff headlines and a Bank of Canada rate decision tomorrow.”

Sam Cornford – Head of Trading

USD

While Treasuries and US equities have tentatively been moving higher this week, the dollar has remained pinned down by the losing trust in the US market. The bond market is still showing some nerves, though, and the New York Fed’s estimate of the term premium – the extra yield investors demand for taking on the risk of lending at longer maturities – is at its highest level in 10 years, as markets have become increasingly attentive to US policy unpredictability. Treasury Secretary Bessent played down these concerns yesterday and brushed off speculation that foreign central banks might have been selling US Treasuries and moving away from the dollar. The Fed’s Waller said yesterday that Trump’s tariff regime is a major shock to the economy, and that the Fed may need to cut rates to prevent a recession even if inflation remains high.

Today we get only an Empire Manufacturing print on the data calendar, though we can expect some more tariff-related headlines around pharmaceuticals and possible exemptions on auto parts. In Canada, we see the final CPI inflation data ahead of tomorrow’s Bank of Canada decision. The market is betting on a 70% chance that rates are held steady.

GBP

A rebound in UK assets across the gilt and equity markets has boosted sterling over the last couple of days. The tentative improvement in sentiment seen since the weekend has helped risk-sensitive currencies to recover broadly, and that has allowed the pound to retrace some of its losses against the euro. GBP/EUR is up 1.5% since its bottom on Friday and GBP/USD is through 1.32, having gained 4% over the past week. The move higher was backed up by a relatively strong labour market report this morning, where unemployment held at 4.4% and ex-bonus wage growth held steady at 5.9%. ONS data has been notoriously unreliable in recent years, but it is not showing the sharp drop-off in hiring that the survey data had been pointing to ahead of the national insurance tax hikes. UK CPI inflation is the main event tomorrow morning, and 2.7% is the expected figure.

EUR

The euro has anchored itself to the 1.13-1.14 range this week, with any attempts at a dollar rally being quickly quashed by renewed selling pressure. There is little predictability with EUR/USD right now based on fundamentals – remember that its April rally is primarily a result of investors seeking alternatives to the dollar and its weakening status as a safe haven. Tariff headlines and whether dollar sentiment worsens will decide whether we can make a push for 1.15. German ZEW data today is expected to wipe out the boost from the fiscal spending plans pushed through last month, with the consensus looking for a sharp drop from 51.6 to 10.0. It is not clear how useful the signal will be, however, given how quickly the tariff story has been changing.

Markets

Global stocks rose yesterday, with most major European indexes rising 2-3% on the day and some still nervy trading in the US ending with a 0.8% gain in the S&P 500.

Main Economic Events (All Times CET)

8:00am: UK Wage Growth & Unemployment
11:00am: German/Eurozone ZEW Economic Sentiment
2:30pm: Canadian CPI

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