Morning Report
March 27, 2025
“Trump’s 25% auto tariffs are the focus for markets today. So far, European FX has been relatively resilient as investors have become more attentive to the negative impact on the US, too.”
Sam Cornford – Head of Trading
USD
The Trump administration gave the media something else to think about after several days of coverage on the Signal scandal, announcing a 25% blanket tariff on cars due to come in on April 3rd. Surprisingly, however, the impact on the FX market was limited, and the dollar’s initial gains were mostly unwound this morning. What has been said, both in the US and across its trading partners, would probably have caused an absolute meltdown only a few months ago. Trump dismissed the idea that negotiation could soften the tariffs: ‘this is permanent, 100 per cent’. And a US official leaned heavily into the idea that tariffs would replace tax revenue to allow for ‘the largest tax cut in American history’. Retaliation is likely, too, with Japan assuring that ‘every option’ would be on the table, and reports suggesting that Canada and the EU could team up to fight back.
So, why is the dollar not surging? In short, markets are fatigued, the US economy is not looking so resilient anymore, confidence has plunged, and equities are correcting. Trump sees the tariffs as a way to bring manufacturing home and fuel the US auto industry, but the market simply does not agree – General Motors shares dropped 7% in after-hours trading last night, and Ford sank 5%. Today, there is a third revision to GDP and some unemployment claims figures, though the tariff story is likely to dominate.
GBP
The good news yesterday was that Reeves got through her kick-the-can-down-the-road Spring Statement without triggering a sell-off in gilts or the pound. That was probably her sole aim, before tax rises become a serious question in October. The OBR slashed its 2025 growth forecast from 2.0% to 1.0%, the debt servicing bill is up to $105bn, and some repairs were needed to restore the headroom to her fiscal rules. To plug the gap, she chose cuts to the welfare bill and departmental spending, rather than any tax rises. They may become inevitable come October, however, if the fiscal position worsens again, and the risks of that are quite high while there is a US president determined to upend global trade. No data today, but there is a speech from the Bank of England’s Dhingra.
EUR
After hitting a three-week low last night, the euro has rebounded this morning. We are well into the 1.07s now, though, and the momentum is downwards on aggregate. The prospect of a trade war might mean it struggles to turn that around, particularly if we hear a strong stance on auto tariff retaliation from policymakers today. European automakers sent 800,000 vehicles to the US last year. There is also a list of ECB speakers hitting the wires today, including Schnabel and Villeroy.
In Norway, the market is pricing in only a 40% probability of a rate cut this morning, after inflation shot up to 3.6% in February, meaning the impact on the krone will be a binary one. The Norges Bank has been by far the most hawkish central bank in Europe, and that is showing up in USD/NOK – it is down 8% over the last two months.
Markets
All eyes are on automakers at the European open, after Trump’s auto tariff announcement squeezed US and Japanese indexes overnight. Casualties so far include Tesla (-5.6%), Mazda (-6.0%) and Subaru (-5.0%).
Main Economic Events (All Times CET)
10:00am: Norges Bank Policy Decision
1:30pm: US Q4 GDP – Third Estimate & Unemployment Claims
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