Written by the Market Insights Team
Not out of the woods
Kevin Ford – FX & Macro Strategist
Market sentiment has largely hinged on interventions by J. Powell or Trump. Last Friday, the Fed Chair showed little inclination toward a more dovish stance, leaving inflation concerns unresolved. With inflation still a pressing issue and the global trade war persisting, risks remain elevated. On the other hand, President Trump followed a patter seen in his first presidency; drastic move, reaction tracked, allies puzzled, course reversed.
Trump’s 90-day pause has offered some relief, easing tariff pressures on currencies like USD/CAD. Without the risk-off sentiment, USD/CAD is gravitating toward strong support levels between 1.405 and 1.41, approaching the critical multi-year support at 1.40.
Canada, notably, avoided reciprocal tariffs last week, which could reduce economic strain and create potential upside from redirected U.S. demand. However, the CAD remains vulnerable as a cyclical currency, affected by lower commodity prices, global recession fears, and lingering tariffs. Tariffs still apply to CUSMA/USCMA non-compliant goods, steel, and aluminum, with auto tariffs set to expand in early May.
Tariff-related uncertainty has already negatively impacted macroeconomic data, as reflected in the Bank of Canada’s Q1 business outlook survey. While Canada is among the few nations imposing retaliatory tariffs, this approach risks escalating trade tensions further.
For the CAD, stock reflation provides some relief, but this is far from a decisive recovery. Trade policy remains largely unchanged, with the effective tariff rate holding steady despite today’s announcement. While pressure on China has intensified, it has eased for other nations. Although a U.S. recession isn’t imminent, its occurrence would likely have significant repercussions for the Canadian economy.
LATAM currencies on the brink
Kevin Ford – FX & Macro Strategist
Yesterday, speculation against emerging market currencies propelled the peso above the critical 21-resistance level, underscoring the profound influence of deteriorating global risk sentiment. Currencies like the Brazilian real, Colombian peso, and Mexican peso have remained closely tied to sentiment in the U.S. stock market, reflecting their reliance on the broader trajectory of risk assets. While the Mexican peso briefly breached the 21 threshold—a level last reached in February and before that in July 2022—it quickly retreated to 20.1.
The announcement of a 90-day pause on reciprocal tariffs by President Trump provided the peso with temporary relief. However, as no changes were made to existing tariffs on Mexico, the broader impact didn’t allow the peso to break away from its 2025 trading range. Market sentiment toward emerging markets continues to play a major role in shaping Latin American currencies, including the peso. A mix of factors—such as a sell-off in U.S. Treasuries, a weakening dollar, and a decline in U.S. equities—has strained the peso’s ability to navigate ongoing tariff tensions effectively.
Despite Mexico successfully avoiding reciprocal tariffs last week, the peso faces significant challenges ahead. Key risks include the possibility of a U.S. recession, the gradual erosion of carry trade appeal, and lingering uncertainty surrounding the renegotiation of the CUSMA/USMCA agreement. The Mexican peso remains highly exposed to worries surrounding a deepening economic slowdown in the United States.
After this volatile week, the peso’s vulnerabilities to worsening global risk sentiment and external pressures have become increasingly evident. Over the next 90 days, its trajectory will likely remain closely tied to shifts in risk assets and broader financial market conditions.
Biggest policy reversal in history
George Vessey – Lead FX & Macro Strategist
It was only a matter of time before markets forced the hand of President Trump. The plunge in equities, including a 20% drawdown in the Nasdaq, left Trump unfazed, holding firm on his aggressive tariff policies. However, it appears it was the intense selloff in US bonds this week that prompted the President to execute one of the biggest economic policy reversals in modern history.
Before the sun set on “reciprocal tariff day” Trump announced a 90-day pause on tariffs for most countries, which saw stock markets roar back with a vengeance. The S&P500 surged over 9% and the Nasdaq over 12% – both staging one of their biggest one-day gains on record. The Magnificent Seven surged as much as 11%, the largest gain since the index’s creation in 2015. Curiously, the recovery in stocks came about three hours after Trump urged Americans to stay calm and continue investing…
Part of the Trump Administrations’ plan was to get rates down, but with long-end yields surging higher on stagflation fears, the White House went from declaring no exemptions, no pauses and negotiations one country at a time to eliminate every trade deficit – to a 90-day pause with tariffs dropping to 10% on the majority of the countries on the original list. Apart from China that is. China now faces 125% levies on all goods exports in response to an earlier move by Beijing.
The tariff pause allows for strategic negotiations, which is good news, but the most critical factor for the global economy remains in escalation mode – this trade war is really only about the US versus China. Will Xi reverse course in attempt to de-escalate? Moreover, markets may be overlooking the fact that a 10% tariff on everything isn’t nothing, and the reality is more uncertainty, and a lack of clarity, for the next three months.
FX markets remain on edge. Safe havens have been sold heavily on the pause news, while those EM and commodity-linked currencies in the firing line of a global trade war have come back strongly. Overnight volatility in the major currencies remains elevated despite tariff reprieve as traders turn focus to today’s release of US inflation data.
Pound recovers with equities, but bonds pose a problem
George Vessey – Lead FX & Macro Strategist
Stress in the bond markets has been evident in the UK too. Yields were rising as worryingly as they were doing in the US, posing a headache for the UK government’s finances, which is already challenged by tight public finances and a weakening growth outlook. The Bank of England (BoE) has stated the global risk environment has deteriorated, and uncertainty has intensified. The pound has had a torrid week against most peers, especially the yen and swissy, down 2% and 3% respectively before the tariff delay was announced, sparking a rapid reversal.
What’s interesting is the divergence in yields across the curve. Long-dated yields are rising amid renewed inflation fears driven by escalating US-China trade tensions. For example, the UK’s 30-year gilt yield, rose to its highest level since 1998. In contrast, fears of an economic slowdown has left the 2-year yield relatively unchanged as investors ramp up bets on BoE rate cuts. Markets now price in 71bps of easing this year, though this is less than the 93bps priced in at one point yesterday. Meanwhile, if the BoE determines the gilt market is becoming dysfunctional, it may be forced to pause its bond selling programme. For now, the tariff pause looks to have provided some reprieve though.
What about the pound? The relief rally in global equity markets, and prospect for stabilization in the UK bond market, is fuel for a recovery in the UK currency. GBP/USD is back above $1.28 as risk appetite returns, but the big talking point is GBP/EUR which had suffered its biggest 5-day drop since 2020 and was trading near 1-year lows as traders flocked to the high-liquid appeal of the euro. The pair sharply went into reverse though and is now trading back above €1.17 following Trump’s capitulation to market forces.
US dollar struggles to recover
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 7-11
All times are in ET
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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.