April 16, 2025

“The focus for the next few days is on tariff negotiations and rate decisions from the Bank of Canada and the ECB. The momentum moved briefly in the dollar’s favour yesterday, but some extra tariff uncertainty this morning has pushed it lower once again.”

Tim Hallinan – Trading Director

USD

The dollar made an effort to rebound yesterday as the mood around tariffs began to improve, but it is back to square one this morning with the market in the grip of another safe haven play. The EU said yesterday that it expects the tariffs to remain after little progress was made in talks and the US failed to set out clear demands. And although bank earnings have generally been strong, the tech sector is suffering from a weaker outlook and the latest escalation in the US-China trade war involving a ban on Nvidia’s H20 chip exports. CHF, JPY, and EUR are again the main beneficiaries, and we remain in an environment where dollar weakness is a simple proxy of tariff anxiety.

Today we get a retail sales print and a speech from Fed Chair Powell. Markets are looking for the ‘control group’ retail sales figure to post another solid figure at 0.6% m/m, and then they will want to see whether Powell can skew more dovish about the impacts of tariffs.

CAD

Canadian headline inflation dropped much more than expected in March, to 2.3%, but stickiness in the Bank of Canada’s core inflation measures means that policymakers are broadly expected (60%) to keep rates on hold today. The bank will want to avoid looking like it is making a politically motivated decision ahead of the election, and for now Canada has actually avoided the worst of the US tariffs. If policymakers decide that they are panicked enough about the global trade shock, however, an insurance cut can definitely be on the table.

GBP

A softer-than-expected inflation print this morning has pulled sterling back below the 1.17 level against the euro, but nothing appears to be stopping its steady rise to new six-month highs against the dollar. CPI cooled from 2.8% to 2.6% and the core measure (ex. food and energy) eased to 3.4%. Adding in the murky tariff outlook, and markets are now fully pricing in another rate cut at the May meeting, keeping the Bank of England on its once-per-quarter pace of rate cuts. However, interest rate differentials are not as dominant as they once were, and the pound seems to be doing its own thing. GBP/EUR’s 0.5% drop was mostly complete before the data release, and it was merely a bump in the road in a continued strengthening against the dollar.

EUR

The euro is heading back towards 1.14 this morning as last week’s trend towards the CHF, JPY, and EUR safe havens is back in play. Yesterday’s improvement in risk appetite took EUR/USD back into the 1.12s overnight, but the mood has soured since and the euro buying resumed. Yesterday’s ZEW sentiment index sank to an 18-month low because of the survey timing between Trump’s ‘liberation day’ announcements and his subsequent 90-day pause. We get some current account data and a final CPI print this morning, but the focus is squarely on tomorrow’s ECB rate decision.

Markets

Strong bank earnings and possible tariff exemptions have done little to improve the mood in the equity market, with the major indexes closing lower yesterday and futures pointing to a difficult day again today. Tech is the major struggler after ASML reported orders well below estimates and the US slapped new export restrictions on Nvidia and AMD chips to China.

Main Economic Events (All Times CET)

8:00am: UK CPI
2:30pm: US Retail Sales
3:45pm: Bank of Canada Decision

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