Markets worldwide were rattled as United States President Donald Trump’s sweeping tariff announcement sent shockwaves through currencies, equities, and bonds. Investors fled risk assets fearing aggressive trade measures would slow global growth, hammer corporate profits, and fuel inflation.
The dollar weakened across the board, while yields and equities plunged. Focus now turns to the University of Michigan’s consumer sentiment survey, U.S. inflation data, and upcoming Federal Reserve meeting minutes. This is as traders weigh the potential for interest rate cuts to shield the economy.
Euro Strengthens as EU Warns of Global Fallout
The EUR/USD pair surged to 1.1146 mid-week - its highest since September 2024 - before settling near 1.1000, buoyed by broad U.S. dollar weakness.
European officials criticised Washington’s move. European Commission President Ursula von der Leyen warned, “the global economy will massively suffer,” and stressed that Europe aimed to reduce - and not raise - barriers. She confirmed that retaliatory tariffs were on the table if negotiations with the U.S. failed.
German Vice Chancellor Robert Habeck echoed his concerns, saying: “For American consumers, this day will not be a 'Liberation Day' but an 'Inflation Day.’”
U.S. Federal Reserve Chair Jerome Powell acknowledged growing uncertainty on Friday. He warned that tariffs would likely drag on growth and spur inflation, stating: "It is not clear at this time what the appropriate path for monetary policy will be,” and that the Fed would adopt a wait-and-see approach.
Despite some late profit-taking ahead of the weekend, the dollar remains under pressure amid fears of a broader recession and diminished confidence in the American economy.
Aussie Collapses as China Tensions Mount
The Australian dollar plummeted below the 0.6050 mark on Friday, a five-year low, weighed down by a stronger-than-expected U.S. Non-farm Payrolls (NFP) report and renewed dollar strength.
The jobs data added to speculation that the Fed may keep rates steady, strengthening the greenback against risk-sensitive currencies.
With China unveiling harsh retaliatory tariffs, the pressure on the Aussies intensified. Given Australia’s close trade ties to China, any further deterioration in China–U.S. relations could amplify the downside risks.
Markets are now pricing in the likelihood of back-to-back interest rate cuts from the Reserve Bank of Australia, with some banks even forecasting a 50-basis-point move in May.
Cable Relatively Unphased
The British pound briefly surged to a six-month high of 1.3196 against the dollar before settling around 1.3003 at the week’s close. The initial gains came as investors saw the U.K. escaping relatively lightly from Trump’s tariff sweep, with only a 10% levy imposed.
However, optimism faded after UK Prime Minister Keir Starmer signalled that retaliation might be necessary, dampening hopes for a quick diplomatic solution. Additionally, a downward revision to March’s services PMI raised questions about the U.K.’s economic momentum.
The broader market turmoil also influenced GBP/USD dynamics. China’s retaliatory tariffs and a strong U.S. NFP print allowed the dollar to regain ground against riskier assets, while remaining weak versus traditional safe havens.
Looking ahead, the U.K.’s upcoming GDP release may support sterling if it confirms that the economy returned to growth in February.
Yen Finds Strength in Safe-Haven Demand
After recent declines, the dollar clawed back nearly 1% against the yen following the NFP surprise, which showed 228,000 jobs added in March - well above expectations. The bounce was driven by renewed investor demand for U.S. assets amid expectations of steady yields.
Nonetheless, ongoing geopolitical and economic uncertainty could limit further upside for USD/JPY. The yen’s appeal as a safe haven remains intact, particularly if investors begin to view the U.S. as an increasingly risky environment.
Should global uncertainty intensify, the yen could once again draw inflows, placing renewed pressure on the dollar in the near term—despite the brief NFP-led rebound.
Economic Calendar
On Monday, key data includes Australian job advertisements for March and U.S. consumer credit figures for February.
Tuesday brings several major releases: Australia will publish the NAB Business Survey for March and Westpac Consumer Confidence for April. In the U.S., the small business confidence index for March is due, while the European Union will release retail sales data.
On Wednesday, attention shifts to Asia, with China reporting March loan growth and money supply data. The Reserve Bank of New Zealand will announce its latest interest rate decision. Japan will release consumer confidence data, and Bank of Japan Governor Ueda is scheduled to speak.
Thursday features a speech by Reserve Bank of Australia Governor Michele Bullock. The U.S. Federal Reserve will release minutes from its March policy meeting. South Korea’s unemployment rate is due, while China will publish its March consumer and producer price inflation data.
Friday is a packed day for economic releases. In Australia, the Commonwealth Bank will release its household spending figures. The U.S. will release the March Consumer Price Index, the Producer Price Index, and the federal budget balance. Meanwhile, the UK will publish GDP, industrial production, and manufacturing production data.
Finally, on Saturday, the U.S. will release the preliminary April reading of the University of Michigan’s Consumer Sentiment Index.
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