- The first 100 days of Trump 2.0 have been explosive, with unprecedented moves across financial markets. April was an historic month of U-turns and flip-flopping on policy by the Trump administration, but recently, the more subdued tone on trade wars has supported risk appetite once again.
- China said it is evaluating US officials’ willingness to negotiate trade talks, giving a spark of hope for de-escalating the trade war between the world’s largest two economies.
- Market volatility has eased back from multi-year high and US stocks have rebounded impressively. The S&P 500 extended its rally, posting its strongest eight-day winning streak since November 2020.
- Ultimately, markets appear to be shrugging off trade war concerns for now, buoyed by optimism that negotiations may ease tensions, plus resilient corporate earnings.
- In the macro sphere, data has been mixed. The US economy contracted by 0.3% in the first quarter of 2025, marking its first decline since early 2022. Consumer confidence fell to a 5-year low, but the ISM manufacturing PMI was less downbeat than expected.
- Still, growing fears of tariffs triggering a global economic slowdown have led to more monetary easing being priced in by markets. No change from the Fed is expected next week, but at least three cuts are priced in by year-end.
- In FX, the more positive risk environment and easing market volatility have reduced more of the risk premium from the USD. The dollar index has modestly rebounded from 3-year lows, but the structural outlooks remains bearish.
Global Macro
Wave of macro data points to global slowdown
US Q1 GDP contraction. The US economy contracted by 0.3% in the first quarter of 2025, slightly more than expected, marking its first decline since early 2022. This follows the 2.4% growth recorded in the previous quarter, underscoring a sharp reversal in momentum. A key driver of the slowdown was a staggering 41.3% surge in imports, as businesses rushed to stockpile goods ahead of anticipated tariff hikes. This widened the trade gap, with net exports dragging down GDP by nearly 5 percentage points, the largest impact on record. Government spending also contributed to the downturn, subtracting 0.25% from overall growth, its first negative impact since 2022. Additionally, private expenditure saw a significant decline, as businesses and investors navigated heightened uncertainty throughout the quarter.
PCE and job market. Fed’s preferred measure of inflation for the month of march, came slightly higher than expected, but cooled off. PCE prices in the US increased 2.3% year-on-year in March 2025, the lowest in five months but above market expectations of 2.2%. In February, PCE prices was revised upwardly to 2.7%. On the other hand, weekly jobless claims climbed to their highest level since Feb 2025. Both data points could be read as bad news for the Fed, as stagflation worries mount.
China PMI slows. Manufacturing activity saw a sharper-than-expected drop in April, entering contraction territory, with services growth also falling short. Concerns over the economic fallout from trade tensions persist, as it’s unclear if Beijing and Washington are actively negotiating. For now, Chinese authorities are taking a cautious approach, opting for measured responses rather than aggressive stimulus.
Focus shift. With the US administration reversing course on tariffs last week, markets have refocused on trade impacts on global growth. The sharp decline in commodity prices underscores widespread expectations of an economic slowdown, though the extent and duration remain uncertain. Macro sentiment has weighed more on global debt and commodities than equities. While volatility has eased, uncertainty continues to linger.
Week ahead
Central Bank decisions and PMIs in focus
Central bank decisions take center stage. The week features two major central bank meetings, with the Federal Reserve’s FOMC decision on Wednesday and the Bank of England’s policy announcement on Thursday. The Fed is widely expected to maintain its target range at 4.25%-4.5%, while markets anticipate a potential 25bps cut from the Bank of England to 4.25% from the current 4.5%. These decisions will be crucial for currency markets, as investors gauge the diverging monetary policy paths of major economies.
Global PMI readings dominate the calendar. The week begins with final April PMI figures across major economies, offering insights into business activity trends. Monday features US services and composite PMI final readings, followed by China’s Caixin services PMI on Tuesday. European PMIs will be released throughout Tuesday, including final figures from France, Germany, and the broader Eurozone, alongside the UK’s services PMI. Japan’s PMI data follows on Wednesday, with the UK construction PMI completing the global PMI picture.
Industrial production data to gauge manufacturing health. Several key economies report manufacturing output figures, starting with France on Tuesday (consensus +0.3% MoM). Germany follows with factory orders on Wednesday (expected +2.1% MoM) and industrial production on Thursday (forecast +1.0% MoM). The UK rounds out the week with manufacturing and industrial production readings on Friday, providing a comprehensive view of global manufacturing conditions amid ongoing economic uncertainties.
Labor market and trade data provide growth insights. The US trade deficit is expected to narrow slightly to $119.5 billion (from $122.7 billion) when reported Tuesday. Canada’s employment figures cap the week on Friday, with forecasts showing a 25,000 job gain following the previous month’s 32,600 decline. The unemployment rate is anticipated to hold steady at 6.7%. These reports will offer valuable context on North American economic resilience as central banks weigh policy adjustments.
FX Views
Risk appetite offers dollar reprieve
USD Risk premium reduced for now. The US dollar index posted its worst monthly performance since late 2022 and has dropped over 9% from its 2025 peak in January. But the mood music on trade has improved slightly of late, which has allowed the US dollar to claw back (albeit modestly) some of its recent losses. Despite US GDP contracting in Q1, and consumer confidence dropping to a 5-year low, the ISM manufacturing report wasn’t as bad as expected. Meanwhile, the slightly more positive risk environment and easing market volatility have reduced more of the risk premium from the dollar’s price. That said, the underlying issue has not gone away. The dollar’s challenges stem less from losing its “exorbitant privilege” and safe-haven status, and more from the looming threat of a sharp US economic slowdown tied to trade disruptions and uncertainty. Dollar price action remains poor for now and a further downturn in core US data could lead to an acceleration of the de-dollarization trend. Then there’s the Fed’s meeting next week, which will reveal whether market expectations for swift rate cuts are justified.
EUR Losing shine, but positive structural shifts. Last month proved to be the best ever April for EUR/USD since the inception of the euro back in 1999, but a new bullish trigger for the euro is needed. The rebound in risk appetite, retreating volatility, month-end flows and hopes that the peak of trade war uncertainty is behind us have weighed on the euro for the week or so. This is despite evidence of contrasting economic signals from the US and Europe. Still, the pair remains circa 9% higher year-to-date, well above long-term moving averages, supported by a more-promising euro-area fiscal and structural domestic outlook as well as the structurally weaker dollar case. The deflationary impact of tariffs on the Eurozone opens the door to more ECB rate cuts, which could limit EUR upside, but what appears to be a more favourable cyclical channel might prove more important for the common currency over the long-term. Indeed, as markets adjust to structural shifts, expectations for EUR/USD reaching $1.20 this year are gaining traction.
GBP Mixed fortunes. GBP/USD scored its biggest monthly gain since November 2023, but GBP/EUR suffered its biggest monthly decline since December 2022 amidst the rapid rotation of flows from the dollar into the euro following Trump’s tariff announcements. This week has been a mixed one for the pound, up most against EUR, NZD and JPY, the latter more than 1% after that dovish Bank of Japan meeting. But GBP/USD is largely unchanged at around $1.33, whilst versus the NOK and AUD, sterling is down on the week. Global risk sentiment continues to dictate sterling’s price action, but the dovish repricing of Bank of England easing bets is limiting its gains. Traders are now pricing in four more quarter-point interest rate cuts from BoE this year ahead of next week’s meeting where a rate cut is fully priced in. GBP/USD could fall slightly below $1.32 and still be above its 21-day moving average in a sign that the uptrend remains intact and with the 14-day relative strength index approaching neutral levels, this type of consolidation/retracement is healthy before attempting another leg higher.
CHF All eyes on SNB’s response. Despite the rebound in global risk appetite this week, the Swiss franc has snapped a 2-week losing streak versus the EUR and USD and posted its best monthly performance versus the buck (+6.6%) since 2015. Without a broader improvement in global risk sentiment, the Swiss franc’s safe-haven status continues to challenge the Swiss National Bank. The sharp rise in the franc is being monitored closely by the SNB as it risks pushing inflation into negative territory. With Swiss inflation already at just 0.3%, tightening financial conditions could amplify deflation risks, presenting a challenging policy dilemma. Two-year yields have dipped back into negative territory, and swaps markets are now fully pricing in a quarter-point rate cut for June. For now, FX intervention seems unlikely to avoid rekindling tensions with the US administration, which previously labeled Switzerland a currency manipulator during Trump’s first term.
CAD Breakout below 1.38 fails. The Canadian dollar has found solid support from broader dollar weakness throughout April, gaining around 4% against the greenback, its strongest monthly gain against the US dollar since April 2015. This week, USD/CAD tested a key support level at 1.377, the lowest since October 2024, following optimistic comments from President Trump on renewed trade talks with newly elected Prime Minister Mark Carney. However, CAD struggled to hold below 1.38 as weaker-than-expected macro data weighed on sentiment, reinforcing a bleak outlook for the remainder of the year. The PMI manufacturing index fell to 45.3 in February, marking its third consecutive decline and the weakest reading since May 2020, signaling ongoing stress in factory activity.
The weekly chart shows firm support at the 90-week SMA at 1.379. Over the past two weeks, CAD has fluctuated between a high of 1.3905 and a six-month low of 1.377, establishing key resistance and support zones to monitor in the days ahead. A ‘death cross’ has emerged on daily candles, with the 20-day SMA crossing below the 200-day SMA, indicating a bearish trend. However, price action is expected to remain range-bound, gravitating toward the 1.393 level, especially if dollar weakness fades and renewed demand for the greenback picks up in the coming days.
AUD Inflation surprise fails to derail RBA cut expectations. Australia’s Q1 headline CPI came in at 2.4% year-over-year, slightly above the 2.3% consensus, while the critical trimmed mean measure (which RBA closely monitors) reached 2.9%, exceeding expectations of 2.8%. Despite these upside surprises, markets remain convinced the RBA will proceed with a 25bps rate cut in May, with 26bps of easing already priced in. Technically, AUD/USD continues testing the critical 200-day EMA resistance at 0.6408, a level that has historically capped advances. The next key support for the pair rests at 21-day EMA of 0.6351. Watch for upcoming Judo Bank services PMI and building approvals data, which could influence near-term price action. A solid services print might temporarily delay RBA easing expectations, potentially providing additional short-term support for the currency.
CNY Manufacturing weakness emerges as Yuan stabilizes. China’s economy is showing initial impacts from tariff concerns, with April’s official manufacturing PMI disappointing at 49.0, significantly below the 49.7 forecast and previous 50.5 reading. The non-manufacturing PMI also underwhelmed at 50.4, missing expectations of 50.6. Particularly concerning was the manufacturing export orders component, which plummeted from 49.0 to 44.7, highlighting growing external pressures. USD/CNH has corrected over 2% from its daily April 8 peak of 7.4290. The pair now approaches key technical support at the 200-day EMA (7.2537), potentially offering an attractive entry point for USD buyers anticipating the longer-term uptrend to resume. Market focus will shift to upcoming Caixin Services PMI, trade balance, and new loans data. The trade figures will be particularly scrutinized for evidence of export resilience amid growing global protectionist measures and signs of manufacturing weakness already evident in the PMI data.
JPY BoJ caution triggers sharp Yen selloff. Markets interpreted the BoJ’s latest communication as surprisingly dovish, triggering an outsized reaction despite Governor Ueda’s moderately hawkish press conference tone. This disconnect highlights the uncertainty phase markets are navigating, particularly with ongoing US-Japan trade negotiations creating additional complexity. USDJPY’s sharp move higher complicates the picture, as the US administration generally prefers yen strength. This tension might reinvigorate speculation for an earlier rate hike, especially considering Japan’s deeply negative real rates amid the BoJ’s still highly accommodative stance. Technically, USDJPY has broken through the important 144.00 resistance level that capped gains throughout late April, clearing out accumulated JPY long positions. The pair now targets 147.00, with immediate support established at 143.50. This technical breakout appears driven by the BoJ’s downward revisions to growth and inflation forecasts rather than a fundamental shift in policy trajectory. Key upcoming data includes the BoJ monetary policy meeting minutes, au Jibun Bank services PMI, household spending, and foreign reserves reports.
MXN Peso trades at 5-year average. The Mexican Peso has held steady, trading near 19.5, its five-year average, and staying below 20 despite mixed local and US macroeconomic data. While first-quarter growth has been sluggish, agricultural activity has helped the Peso avoid slipping into a technical recession.
Challenges remain, like weaker commodity prices, a slowing outlook from its key trading partner to the north, and expectations of further Banxico rate cuts that could reduce carry appeal. Still, the short-term outlook looks brighter as President Sheinbaum’s trade successes with the US and her calm approach to tariff tensions have helped shift sentiment. This week, Mexico and the US reached two key agreements: one to deliver more water from the Rio Grande basin to Texas farmers, addressing concerns over a decades-old water-sharing pact, and another to tackle the New World screwworm pest, avoiding restrictions on US livestock imports.
The Peso’s recent gains could ease inflation worries, while slower growth may help keep broader price pressures in check. Trump’s softened stance on key policies has also boosted sentiment, with the Peso trading stronger in the near term. President Sheinbaum enjoys high approval ratings, with 67% of Mexicans viewing her leadership positively—outpacing her predecessor. Despite hurdles like tariffs and recession risks, optimism persists, with over half of Mexicans expecting economic improvement in the next six months and confidence high in Sheinbaum’s ability to negotiate better trade deals.
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*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.
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