April 23, 2025

“Trump’s latest pivot lifted the dollar last night, as he promised not to remove Powell as Chair of the Federal Reserve and that tariffs on China would soon be reduced. It is a busy day today, with PMIs across the Eurozone, UK, and US alongside several speeches from the Bank of England.”

Sam Cornford – Head of Trading

USD

The dollar bounced and a relief rally for US assets emerged overnight, as Trump assured markets that he has ‘no intention’ of firing Fed Chair Powell after all, and that tariffs on China would soon be ‘substantially’ lower. Bessent echoed Trump’s sentiment on de-escalation with China and said that the current situation was ‘unsustainable’, though he suggested that the pace of negotiations for a full trade deal would be slow and warned that neither side had actually agreed to any talks yet. The market has completed a full Easter round trip now and is back to last Thursday’s levels this morning – EUR/USD has fallen 2% peak-to-trough so far this week. The dollar remains a solid proxy for anxiety around tariffs and the robustness of US economic institutions.

Eyes are on the PMIs today and the market is looking for a modest drop in the composite figure from 53.5 to 52.0. The tariff story is more important than the survey data for now, but a significant downside surprise could prompt another fire sale for US assets.

GBP

As with most of its peers, the pound has been driven by the Trump headlines and GBP/USD has fallen away slightly from its 7-month high hit yesterday. The rebound in risk sentiment helped GBP/EUR to tick higher by around 0.5%, however. The euro’s higher attractiveness as a safe haven compared to sterling has turned GBP/EUR into a close proxy for tariff sentiment since ‘liberation day’ – not the outcome some had expected, given that the UK is much less exposed to US goods trade. Today, we get some PMI data out this morning, where the consensus is for a weakening across both the services and manufacturing indexes. It is also a busy day for Bank of England speakers, too, with Pill, Breeden, and Gov Bailey all set to give their views ahead of a likely rate cut in the first half of May.

EUR

The euro’s newfound role as a safe haven currency continues to be its primary driver, and it underperformed yesterday as a sigh of relief engulfed markets. The changing correlations within the FX market have caught the attention of the ECB even, with Lagarde saying yesterday that the euro’s strength is ‘counterintuitive’. On monetary policy, she doubled down on the ‘data-dependent’ stance of the central bank, saying that it would be so ‘to the extreme’ given the inherent unknowability of Trump’s policy pivots. This morning’s PMIs are an indicator that the ECB has tended to take seriously, and so far both the French and German prints have been materially weaker than expected – both are now in contraction territory (<50.0).

Markets

Risk assets got a lift as fears about Fed independence faded and the Trump administration pointed to near-term de-escalation in the US-China trade war. The S&P 500 and the Nasdaq both ended yesterday’s session around 2.5% higher, and futures are hinting at another strong day today.

Main Economic Events (All Times CET)

8:00am: UK Public Net Borrowing
10:00am: Eurozone PMIs
10:30am: UK PMIs
3:45pm: US PMIs

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