Written by the Market Insights Team
Critical questions ahead of April 2nd
Kevin Ford – FX & Macro Strategist
President Trump has signed an executive order to impose a 25% tariff on all car imports starting April 3rd. However, cars from Canada might face a lower rate due to the close ties between North American industries. Under the US-Mexico-Canada Agreement (USMCA/CUSMA), only the parts not made in the U.S. will be taxed.
With April 2nd fast approaching, here’s a key question: will the 25% tariffs on Canada and Mexico be replaced by reciprocal tariffs, and will the US-Mexico-Canada Agreement (USMCA/CUSMA) exemption still apply?
To recap, on February 1, President Trump signed executive orders imposing 25% tariffs on Canada and Mexico, set to take effect on February 4. However, on February 3, he issued new orders postponing the tariffs until March 4. When the tariffs became effective on March 4, further executive orders on March 6 adjusted them, exempting USMCA/CUSMA-certified goods and reducing the tariff on potash from 25% to 10%.
Looking ahead, two scenarios are possible next week: either the 25% tariffs on Canada and Mexico are replaced with reciprocal tariffs, or these reciprocal tariffs are added on top of the existing 25% tariffs. In either case, the current exemption for USMCA/CUSMA-compliant goods may persist, though it remains uncertain.
The CAD remains closely tied to the tariff situation, with risks heavily tilted to the downside, especially in the short term. According to the Bank of Canada, while domestic Q4 data showed signs of strength and hinted at recovery, the shadow of tariffs has overshadowed this progress. The BoC has also acknowledged that, were it not for the economic threats posed by tariffs, the central bank would have maintained steady interest rates during its latest meeting. Should these tariffs persist long-term, they could impose a significant supply shock, potentially pushing Canada’s economy toward a recession. The uncertainty surrounding this issue is palpable, with ripple effects already evident in slumping consumer confidence and cooling business spending.
On the bright side, some of this impact is already factored into the CAD’s value. Some analysts predict the CAD could rise to 1.46 if the tariffs are confirmed. There’s hope that renegotiating the USMCA/CUSMA after Canada’s federal election on April 28 could help turn things around.
Equities down on tariff additions
Boris Kovacevic – Global Macro Strategist
On Wednesday, the US dollar edged higher as investors braced for President Trump’s looming tariffs on auto imports, semiconductors, and pharmaceuticals. The dollar index ticked up to 104.50, reflecting cautious sentiment ahead of the widely anticipated April 2 announcement. As investors await the deadline, Trump announced plans to impose a 25% flat tariff on all cars being imported from abroad. Equity markets naturally took a hit.
Stocks ended sharply lower, with tech leading the decline—Tesla and Nvidia both plunged over 5.5%, dragging the Nasdaq down 2%. The S&P 500 and Dow followed suit, snapping a three-day rally as uncertainty over the scope and impact of tariffs fueled risk-off sentiment. Bond markets told a similar story, with Treasury yields falling as investors sought safety amid escalating trade tensions.
Meanwhile, Minneapolis Fed President Neel Kashkari acknowledged the economic uncertainty tariffs bring—on one hand, they could push inflation higher, justifying rate hikes; on the other, they could slow growth, making the case for cuts. His takeaway? The Fed is in no rush to move. Overall, markets remain on edge as trade policy takes center stage once again.
With major tariff announcements on deck, investors are weighing the risks of supply chain disruptions, corporate earnings pressure, and potential retaliatory measures. The next few days will be key in determining whether this latest round of trade tensions is a temporary headwind or something more lasting.
Euro down 7th day in a row
Boris Kovacevic – Global Macro Strategist
The euro extended its losing streak on Wednesday, with EUR/USD falling for the seventh consecutive session to $1.0740—down from its late March peak of $1.0950. The sharp decline came as President Trump officially signed a 25% tariff on auto imports, escalating trade tensions and fueling concerns about the Eurozone’s export-heavy economy.
With Germany’s auto sector at the heart of the European economy, the tariffs are a direct blow to one of the bloc’s key industries. Automakers and suppliers are bracing for supply chain disruptions, while policymakers in Brussels weigh potential retaliation. The timing is particularly tough for the Eurozone, where growth has been fragile, and inflation is finally showing signs of cooling—supporting the case for ECB rate cuts later this year.
For now, traders remain cautious, with the euro under pressure as markets digest the potential fallout from Trump’s latest trade measures. As investors assess the broader impact, any signs of a dovish shift from the ECB or further escalation in trade tensions could dictate the next leg of the euro’s move.
Markets shrug off Spring Statement
George Vessey – Lead FX & Macro Strategist
There wasn’t much to cheer about in the UK Chancellor’s Spring Statement yesterday. But one positive takeaway was that the pound and gilts came away relatively unscathed – bruised but not battered. GBP/USD slipped under $1.29, but GBP/EUR held firm in the middle of €1.19-€1.20.
Chancellor Rachel Reeves outlined significant fiscal measures amidst downgraded growth forecasts. The Office for Budget Responsibility halved the UK growth forecast for 2025 from 2% to 1%, prompting the government to announce £15 billion in spending cuts, including welfare reforms and reductions to departmental spending. The statement emphasized defense spending increases and housing initiatives, but concerns over economic growth and fiscal headroom remain.
Ahead of the fiscal update, sterling had already come under some selling pressure as UK inflation unexpectedly slowed to 2.8% in February from a year earlier. This saw bets of Bank of England (BoE) rate cuts rise and yields fall, dragging sterling lower across the board. Yields briefly popped higher when Reeve’s announced that day-to-day spending will rise 1.2% in real terms, but declined again after the government’s planned gilt sales this year was less than expected. The Debt Management Office slashed the share of long-dated bond sales to 13.4% from an estimated 17.2%. Gilts ended the day relatively flat, and the pound less than 0.5% down against most peers.
Ultimately, the fiscal backdrop is fragile, and the economy is frail, and while Reeves has rebuilt some fiscal headroom in her budget and GDP growth beyond 2025 has been revised higher, the economy will need to perform well for those projections to hold steady. Despite all the doom and gloom, it must be said that investors aren’t shunning the pound. Year-to-date, sterling has appreciated against 65% of 50 global currencies we’re tracking and remains over 2.5% up on the USD this month alone.
Dollar finds some bid
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: March 24-28
All times are in ET
Have a question? [email protected]
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
Leave a Reply