May 09, 2025

“It is still all about trade for the FX markets, and the dollar managed to rebound yesterday as the US announced its first trade deal ahead of this weekend’s talks with China. The outcome of these discussions will be crucial.”

Sam Cornford – Head of Trading

USD

Trump announced his first deal of the trade war yesterday and expressed optimism on China talks yesterday in a press conference with UK PM Starmer, and the market is quite happy about it. Most see it as more of a framework than a signed deal, and the 10% base rate tariff remains in place, but there were some breakthroughs on auto and steel levies. Commerce Secretary Lutnick has said that dozens of similar deals will be rolled out over the next month, and investors appear to have gained hope that other countries can bring down their ‘liberation day’ tariff levels too, although the 10% universal tariff looks to be a non-negotiable floor. The mood has been buoyed for risk assets in general going into tomorrow’s US-China trade talks in Geneva, and the dollar index has touched its highest level in almost a month this morning. Meanwhile, the safe haven CHF and JPY both shed the most gains. There is not much data today, but we get some speeches from Williams, Goolsbee, and Barkin at the Fed, and there is the April employment report in Canada.

GBP

Sterling performed well on the crosses yesterday as the BoE stuck to its hawkish tone and the recent trade deals with the US and India boosted sentiment. Rates were cut by another 25bps from 4.50% to 4.25%, with the vote split three ways between the two voting for a 50bp cut (Dhingra and Taylor), two voting to hold rates steady (Pill and Mann), and the remaining five that opted for a 25bp cut. There was a total lack of consensus on the outlook for the British economy – on the one side you have committee members panicking about inflation undershooting as the economy slows down, and on the other there are worries about persistently hot jobs market that requires restrictive policy to remain. Key for sterling, though, was that the word ‘gradual’ was retained in its mantra of a ‘gradual and careful’ approach to setting policy – many had begun to suspect that there would be hints that cuts would accelerate into the summer. Gov Bailey speaks later today.

As hard as it is to predict, it is important to note that the UK-US trade deal is widely expected to have only a marginal impact on the UK economy – potentially less than 0.1% of GDP. That might explain why GBP/EUR is shedding some of its gains this morning.

EUR

The euro continues to be knocked around by the US trade story. EUR/USD bounced off the 1.12 level this morning and has rebounded around 0.5% since, as markets try to piece together what the first trade deal means for negotiations with the likes of the EU and China. It is not clear how much optimism can really be built in from potential parallels with the UK deal – EU-US trade is far more imbalanced, and Trump will be demanding a lot bigger concessions if the threatened 39% tariffs are to be brought down to levels anywhere near 10%. News on further deals and on talks with China are likely to dominate in the near term.

Markets

Risk assets turned higher in the US session as Trump’s first trade deal improved the mood, and futures are pointing to a stronger open in Europe this morning too.

Main Economic Events (All Times CET)

8:00am: Norway CPI
2:30pm: Canadian Employment Change

To learn more about Ballinger Group, please visit our website or our LinkedIn page.