Morning Report
April 25, 2025
“The US-China trade war is the dominant topic for FX right now, with each headline dragging the dollar up and down depending on whether it improves the mood or hurts it. Next week brings some top tier data, with Q1 GDP and non-farm payrolls in the US and a Canadian election.”
Sam Cornford – Head of Trading
USD
The dollar is sticking to its status as a ‘high beta’ currency and rose again alongside equities with some tariff relief overnight, as reports emerged that a concerned Beijing is looking to exempt some goods from US tariffs. But once again, the rebound has been met renewed dollar selling this morning – it is becoming clear that trust in the dollar will be harder to rebuild that it was to break down, and it is going to take more than Trump’s pivots on Fed Chair Powell and on China tariffs that we saw earlier in the week. China’s statement this morning that there are still no trade talks with the US, and that the White House should not mislead the public on this, is part of the reason. The only country where negotiations seem to be progressing is South Korea, and for all the headlines about Japan, there has still not been any concrete progress. The market will likely continue chasing these headlines today, though there will be an increasing focus on the US jobs market in the lead up to non-farm payrolls next week. The Fed’s Waller expressed much more concern about growth than inflation yesterday, arguing that the price increase from tariffs would probably be transitory but that a serious hit to jobs might prompt more rapid rate cuts.
GBP
Sterling remains more responsive to risk conditions rather than the data this morning. GBP/EUR touched a two-week high amid the relief on US-China tariffs this morning, and it has then fallen since the upbeat UK retail sales report. Instead of contracting by -0.4%, it grew by 0.4%. Admittedly, the market probably doesn’t see a brief weather-related boost as a reliable signal for UK spending growth into a trade shock, especially after April’s miserable PMI print. Gov Bailey emphasised the view that tariffs would be bad for growth in an interview yesterday afternoon. The trade story will remain key, and we have a speech from the BoE’s Greene today.
EUR
The euro has generally trended lower this week after surging on Fed independence worries on Monday, but it continues to consolidate in the 1.13-1.14 range where it has settled since April 2nd. The headlines out of the eurozone have been generally soft – business confidence is suffering, policymakers have floated the idea that 50bp cuts are still in the toolbox, and growth is stagnating. But it remains a favoured alternative to the dollar, which has struggled to push EUR/USD down to 1.13. In Switzerland, the main event today is a speech from SNB Chairman Schlegel, where traders will be looking for confirmation that rates will be taken down to 0% at the June meeting – the market is fully pricing this move right now.
Markets
Some upbeat corporate earnings releases and hopes for de-escalation in the US-China trade war lifted stocks broadly yesterday. The S&P 500 gained over 2%, and the optimism spread to Asia overnight with a similar rise in the Nikkei and rising futures in Europe.
Main Economic Events (All Times CET)
8:00am: UK Retail Sales
2:30pm: Canadian Retail Sales
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