Important calendar events
The dollar remained steady on Tuesday, and the index hovered close to 104.2. U.S. Treasury yields declined, with the US 10-year bond yield dropping from 4.20% to 4.18%.
US President Donald Trump has been using threats of imposing trade tariffs as a negotiation tool to further his agenda with other countries. Trump has threatened to impose reciprocal tariffs on many countries, which would raise US import taxes to match those imposed by the country’s other trading partners. Markets this week will continue to focus on Trump’s economic policies and trade tariffs, and Trump’s statements are likely to cause volatility in the price of the dollar.
Trump has threatened most countries with heavy tariffs, which will be announced on Wednesday, April 2. Markets will likely experience some turbulence on Wednesday as Trump’s tariffs will hit markets. Most countries will seek to negotiate with Trump’s administration over the implementation of the tariffs, leading to increased market volatility.
Trump’s tariffs may spark global trade wars and are causing turmoil in markets. Import taxes will raise the price of many products, fueling inflationary pressures. Other nations are likely to reciprocate with tariffs of their own, starting global trade wars, which may lead to economic deterioration and rising inflation in many countries. Trump’s economic policies are raising concerns that the US economic growth will slow down. Many analysts are already expressing concerns that the US will enter a recession.
The US Federal Reserve kept interest rates unchanged at its policy meeting in March. FOMC policymakers voted unanimously to maintain the federal funds rate to a target range of 4.25% to 4.50%. Policymakers remained cautious and opted to keep interest rates steady under a climate of economic and inflationary statements.
Fed Chair Jerome Powell delivered a hawkish message after the policy meeting, stating that the central bank is not in a hurry to lower interest rates. Powell cited economic instability and elevated inflation risks due to trade tariffs as the reasons behind the Fed’s decision to keep interest rates steady. Markets are pricing in two more rate cuts this year, with the first rate cut in June, while a third rate cut is also considered possible.
On the data front, ISM Manufacturing PMI data released on Tuesday showed that the US Manufacturing sector dropped into contractionary territory in March, with a print of 49.0 below the threshold of 50.0 that denotes industry expansion. US JOLTS Job Openings came in lower than expected on Tuesday. Job openings dropped to 7.57M in February from 7.74 million in January, missing expectations of 7.63M.
The US economy expanded by 2.4% in the final quarter of 2024, against previous estimates of 2.3%, following a 3.1% expansion in the third quarter of 2024. In addition, the US economy expanded by 3.0% in the second quarter of 2024 and by 1.4% in the first quarter. US Unemployment Claims released on Thursday dropped to 224K for the week ending March 22 from 225K the week before, against expectations of a 225K print.
Headline inflation in the US rose by 2.8% year-on-year in February after rising by 3.0% in January against expectations of a 2.9% print. Monthly inflation rose by just 0.2% in February, after rising by 0.5% in January against a 0.3% rise anticipated. Core CPI, which excludes food and energy, rose by 0.2% in February, which was significantly lower than January’s reading of 0.4% and fell below expectations of 0.3%. Annual Core CPI rose by 3.1% in February, below the 3.2% estimate, down from 3.3% in January.
ADP Non-Farm Employment Change data are due on Wednesday. Services PMI data and Unemployment claims are due on Thursday. This week’s most highly-anticipated data are the labour data due on Friday and especially Non-farm Payrolls or NFPs.
EUR/USD edged lower on Tuesday, dropping from 1.081 to 1.080. If the EUR/USD pair declines, it may find support at 1.073, while resistance may be encountered near 1.085.
The ECB lowered its benchmark interest rate by 25 basis points at its latest policy meeting, bringing its main refinancing rate down to 2.65% from 2.90%. In her speech after the policy meeting, ECB President Christine Lagarde reiterated her former statement that the central bank’s policy will remain data dependent and warned that the ECB will need to stay vigilant in these uncertain times.
US President Donald Trump has threatened Europe with high tariffs. Last week, Trump announced that he will impose a 25% tariff on automobiles after April 2. Several EU countries, such as France, Italy, and Germany export cars to the US and will be affected by these tariffs. Germany, in particular, sells 13% of its total automobile exports to the US.
The European Commission is reportedly preparing concessions to the U.S. to alleviate some of the tariffs imposed by Trump’s administration. Trump is expected to announce the tariffs on Wednesday, April 2, and most countries are in a frenzy to prepare countermeasures. EC President Ursula von der Leyen stated that the EU is open to trade negotiations with the US, but would retaliate strongly if needed.
Revised GDP data showed that the Eurozone economy expanded by 0.2% in the final quarter of 2024 after expanding by 0.3% in the second quarter, against original estimates of 0.1% growth. The economic outlook of the EU remains fragile as prolonged tightening has brought the Euro area economy to the brink of recession.
Eurozone inflation rose to 2.3% year-on-year in February after rising by 2.5% in January, against a previous reading of 2.4%. Core CPI, which excludes food and energy, dropped to 2.6% in February from 2.7% in January.
GBP/USD traded sideways on Tuesday, oscillating around the 1.291 level. If the GBP/USD rate goes up, it may encounter resistance at 1.299, while support may be found near 1.287.
US President Donald Trump has announced that he will impose a 25% tariff on automobiles after April 2 as well as other reciprocal taxes. The Sterling, however, is supported by hopes that the UK will be exempt from Trump’s tariffs, as the UK has enjoyed a close partnership with the US for many years. Prime Minister Keir Starmer stated that he seeks to secure a trade agreement with the US that will exclude the UK from Trump’s tariffs.
BOE policymakers kept interest rates steady in March and the Official Bank Rate was maintained at 4.5%. MPC members voted 8-1 to keep rates on hold, with only one member voting for a 25 basis point rate cut.
In his speech after the policy meeting, Bank of England Governor Andrew Bailey stated that there is a lot of uncertainty at the moment, but he still thinks that interest rates are on a declining path. The BOE currently anticipates that the British economy will grow by 0.25% in the current quarter, up from 0.1% previously.
Final GDP data for the fourth quarter of 2024 showed that the British economy expanded by 0.1% matching previous estimates and following economic stagnation in the third quarter of 2024. The British economy contracted unexpectedly by 0.1% in January after expanding by 0.4% in December, missing expectations of 0.1% growth.
Headline inflation in the UK rose by 2.8% annually in February, down from 3.%0 % in January, against expectations of a 2.9% print. Core inflation, which excludes food and energy, rose by 3.5% year-on-year in February, falling below expectations of 3.6% as well as January’s print of 3.7%.
USD/JPY traded sideways on Tuesday, close to the 149.7 level. If the USD/JPY pair declines, it may find support at 148.7. If the pair climbs, it may find resistance at 151.3.
The BOJ held interest steady at 0.50% at its policy meeting in March. BOJ Governor Kazuo Ueda stated that the central bank will keep adjusting the degree of monetary easing to support the country’s economy. Ueda stressed, however, that inflation in Japan remains below the BOJ’s 2% target, lowering rate hike expectations and boosting the Yen.
Markets anticipate that the BOJ will raise interest rates at least one more time this year, and there is a high probability of a second 25-bp rate hike within the year. The BOJ is expected to raise interest rates by approximately 75 basis points in the next two years, which will bring the central bank’s peak rate to 1.25%.
The Yen gained strength last week after the release of the minutes of the BOJ policy meeting in January. The minutes revealed that most BOJ policymakers felt that the likelihood of Japan’s inflation rising above the central bank’s 2% target is high. Some BOJ members also opined that the central bank should continue tightening its monetary policy if the bank’s inflationary and economic targets were achieved.
US President Donald Trump has announced that he will impose a 25% tariff on automobiles after April 2. Japan is a major importer of automobiles to the US, and the tariffs are likely to affect the country’s economy. Japan’s Prime Minister Shigeru Ishiba stated on Thursday that all options were open in response to the US tariffs.
Final GDP data for the final quarter of 2024 showed that the Japanese economy expanded by only 0.6% against expectations of 0.7% growth. Final GDP data for the third quarter of 2024 showed that Japan’s economy expanded by 0.3%, down from 0.7% in the second quarter.
Inflation in Japan is on the rise, raising the odds of future rate hikes and providing support for the Yen. The headline Tokyo CPI inflation rose to 3.4% annually in January from 3.0% in December. National Core inflation in Japan came in at 3.0% year-on-year in February against expectations of a 2.9% print, but came down from January’s 3.2% print. In addition, BOJ Core CPI remained steady at 2.2% year-on-year in February.
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Written by:
Myrsini Giannouli
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