Morning Report
April 17, 2025
“A common thread we are seeing in central bank rhetoric right now is that policymakers have almost no idea where the global economy, or interest rates, are headed this year. The ECB is likely to reflect that sentiment as it cuts rates today.”
Sam Cornford – Head of Trading
USD
The lack of support for the dollar following Powell’s unambiguously hawkish speech last night is testament to the fact that the underlying drivers in FX have shifted under Trump. While the market remains convinced that a weaker growth outlook will push the Fed to cut in June, Powell appeared much more concerned with leaning against an increase in inflation, emphasising that ‘without price stability, we cannot achieve the long periods of strong labour market conditions that benefit all Americans’. Last year, a rate-obsessed market would have used this as an opportunity to buy dollars. But central bankers have little control over the expected rate path right now; they are beholden to Trump’s trade wars. That is a theme that has been cropping up repeatedly this week, with the BoC admitting defeat trying to forecast the future and the ECB likely to shy away from forward guidance too today. Today, there will be some focus on US-Japan trade talks, in which Trump has so far hailed ‘big progress’, and we get this week’s unemployment claims data.
CAD
The Bank of Canada’s guidance was as non-committal as it gets. Holding rates steady, Macklem simply said that ‘we don’t know what’s coming next’ and only that they would act ‘decisively’ once the outlook becomes a bit clearer. Rather than sticking to one set of forecasts, they actually gave two – one scenario in which most tariffs were negotiated away, and another in which there was a long-lasting trade war. 2026 GDP was projected to vary between -0.2% and 1.4%.
GBP
Sterling ended the day flat against the dollar but almost 1% weaker against the euro yesterday, as safer currencies gained some momentum again. After yesterday’s softer-than-expected CPI data, the market is betting on a continuation of the Bank of England’s quarterly pace of rate cuts through the rest of the year. The only data coming out of the UK today is the BoE’s credit conditions survey, so sterling is likely to move according to external developments.
EUR
The euro is holding on to that 1.13-1.14 range ahead of an ECB rate decision today. A seventh rate cut over the past year is priced at 98% today, despite being something closer to a coin flip for much of last month. Without the April 2nd tariffs, it would probably be the case that pausing would be a serious debate today, but the incoming once-in-a-century trade shock has shifted the focus back to the downside risks to growth. Don’t expect any concrete forward guidance from the ECB – they are as clueless as everyone else as to how the tariff story will evolve and what impact that has on the real economy. Rate differentials are not in charge of FX right now in any case, with the loss of trust in the dollar a more dominant reason as to why we are closer to 1.15 than 1.05.
Markets
Equities took a dive overnight as Fed Chair Powell gave little reason to think that he would come to the market’s rescue. The S&P 500 closed 2.2% lower and the Nasdaq sank 3%, while futures for all the major European indexes but the DAX are in the red this morning.
Main Economic Events (All Times CET)
3:30am: Australian Employment Change
2:15pm: ECB Decision
2:30pm: US Jobless Claims
To learn more about Ballinger Group, please visit our website or our LinkedIn page.