The foreign exchange market continues to remain volatile overnight with the high beta G10 currencies staging strong rebounds after heavy losses since last week. The best performing currencies have been the Australian and New Zealand dollars alongside the Norwegian krone which have all strengthened by 1% or more against the US dollar.
The US dollar has continued to trade at weaker levels overnight after yesterday’s sharp sell-off in response to President Trump’s plans for “reciprocal tariffs”. The dollar index declined by 1.7% yesterday on a closing price basis which was the largest daily sell- off since November 2022.
The announcement of the reciprocal tariff plan comes against a backdrop of worsening economic data which has been the key factor behind the change in financial market reaction to tariff news from US dollar supportive to dollar negative.
President Trump’s so-called “Liberation Day” has arrived and an announcement is scheduled for the Rosa Garden at 4pm Washington time when all will be revealed in terms of the tariff actions against the US’s trading partners.
The other main event overnight has been the RBA’s latest policy meeting. The RBA decided to leave their policy rate unchanged at 4.10% as expected after delivering the first rate cut in the easing cycle at the previous meeting in February.
It has been a quieter trading session overnight after the risk-off start to the week. The Nikkei 225 index is unchanged after yesterday’s sharp 4.1% sell-off. Similarly, the major foreign exchange rates have been relatively stable overnight ahead of the release tomorrow of President Trump’s plans for “reciprocal tariffs”.
At present, the G10 FX PIX 2.0 signals that the EUR and CHF are overbought. We have temporarily suspended the model’s trading strategy for maintenance but hope to be able to report new FX trading signals soon.
The other main development over the weekend was the formal arrest of Istanbul Mayor Ekrem Imamoglu who has been jailed on corruption charges on Sunday. The case has the potential to keep Imamoglu, who denies the charges, behind bars for years and prevent hm running from running against President Erdogan in the next election.
The US dollar has weakened modestly start the start of this week resulting in the dollar index falling back below the 104.00-level. The main trigger has been Bloomberg report stating that President Trump’s plans for a “Liberation Day” tariff announcement on 2nd April is poised to be more targeted according to aides and allies.
There was a busy schedule of European central bank policy updates yesterday including the latest meetings from the BoE, Riksbank and SNB. The policy updates have had only a modest impact on the FX market. At yesterday’s MPC meeting (click here), the BoE signalled that they are less confident over continuing quarterly rate cuts reflecting heightened uncertainty over the economic outlook.
The yen is finishing the week on a softer footing with USD/JPY rising back above 149.50 after hitting a low yesterday at 148.18. The pair is currently on course for the second consecutive week of modest gains. The yen has been undermined this week by the BoJ’s cautious policy update (click here) when they expressed more unease over elevated overseas uncertainties which were described as “rising quickly”.
The pound has outperformed alongside other European currencies this month benefitting from the significant improvement in investor sentiment towards the region. It has helped to lift cable back up above the 1.3000-level for the first time since last year’s US election.
The US dollar has continued to trade at modestly weaker levels following last night’s FOMC meeting. One of the biggest movers has been USD/JPY which has fallen back towards the 148.00-level after briefly rising back above the 150.00-level yesterday.
The pound has outperformed alongside other European currencies this month benefitting from the significant improvement in investor sentiment towards the region. It has helped to lift cable back up towards the 1.3000-level for the first time since last year’s US election. In contrast, the pound has weakened modestly against the euro lifting EUR/GBP back above the 0.8400-level for the second time this year.
It has been a quiet start to the week for the major FX rates ahead of a busy schedule of G10 central bank meetings this week including the BoJ and Fed on Wednesday followed closely by the SNB, Riksbank and BoE on Thursday. Ahead of those policy updates the US dollar is continuing to consolidate at weaker levels against other major currencies with the dollar index trading just below the 104.00-level.
The Canadian dollar was the top performing G10 currency yesterday with the policy announcement and communication update ultimately helping to lift the currency. The 25bp cut was well telegraphed and fully priced so the 10bp intra-day jump in the 2yr swap rate was more down to the communications having a hawkish element.
The 25% steel and aluminium tariffs have hit the UK too today but the UK government is reportedly working hard to receive a carve-out from the tariff action. UK Business and Trade Secretary Jonathan Reynolds held a call with Commerce Secretary Howard Lutnick on Sunday about a possible carve-out and PM Starmer brought up the subject when he met President Trump last month.
The US dollar has advanced by about 0.4% from the lows late in US trading yesterday after tariff escalation fears receded somewhat after President Trump reversed his earlier announcement to double Canada’s steel and aluminium tariff from 25% to 50%.
Positive growth impulse in Europe counters tariff hit to Asia The pick-up in risk aversion at the start of this week amongst market participants has triggered a correction lower for emerging market currencies. The CLP (-1.7% vs. USD), COP (-1.2%), BRL (-1.1%), IDR (-0.9%) and THB (-0.7%) have weakened the most since the end of last week while the Central European currencies of the CZK (+0.3% vs. USD) and HUF (+0.1%) have continued to outperform.
The major FX rates have remained relatively stable at the start of this week in contrast to the deepening sell-off in the equity markets. One of the biggest movers yesterday was the Nasdaq composite index which fell sharply by 4.0% and extended its decline since the high in December to almost 14%.
The sharp move higher in yields outside of US has been an important driver of US dollar weakness at the start of this year. The 10-year JGB yield hit a fresh year to date high overnight of 1.58% and has now risen by around 40 basis points year to date.
The US dollar is little changed at the start of this week as it continues to trade at weaker levels following last week’s sharp sell-off. The dollar index has fallen back below the 104.00-level giving back all of its gains since the US election victory for President Trump.
Given the current macro and geopolitical backdrop globally, the ECB yesterday were unwilling to provide much in the way of strong guidance but the description of the monetary stance being “more meaningfully less restrictive” helped to provide further modest support for yields with EUR/USD extending the significant gains already recorded this week.
FX market in “wait & see” mode ahead of Trump tariff deadline.
