- Global markets were sent on a roller-coaster ride as investors first sent markets lower after the larger-than-expected tariff announcement from US President Donald Trump before Wednesday’s announcement of a pause sent equity markets surging.
- Initially, global markets fell, with the US’s S&P 500’s 10.6% two-day loss after the tariff announcement the largest two-day fall since the initial Covid sell-off in March 2020. At its worst, the S&P 500 fell as much as 14.6% after the announcement.
- Other markets were also shaken. The US ten-year bond yield fell from 4.13% to 3.85% while crude oil fell 24%.
- Mid-week, the moves pushed to an extreme. Most notably, a turn in the US bond market saw the ten-year bond yield surge back to 4.51% from the 3.85% lows in just three trading sessions – a bond market move comparable to British prime minister Liz Truss’s last days.
- The market action forced a re-think. US President Donald Trump announced a 90-day pause in the implementation of the most severe tariffs on the majority of trading partners, but raised tariffs on China to 145%. The benchmark S&P 500 jumped a massive 9.5% in the index’s eighth-best percentage performance in history and the best outside of the Great Depression and Global Financial Crisis eras.
- FX markets followed a similar trajectory. However, key moves signalled that the last ten days might have long-term structural impact. The US dollar mostly weakened, losing its safe-haven status, while the euro, yen and swissy outperformed. The CAD and AUD also gained.
Global Macro
Biggest policy reversal in history
Trump yields to Treasury market. 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. 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 145% levies on all goods exports in response to an earlier move by Beijing.
Bond sell-off went too far. A mass departure from longer-dated US Treasuries drove yields sharply higher, triggering the most significant selloff in these so-called safe assets since 2020. Rising borrowing costs were delivering yet another blow to the global economy, already strained by President Trump’s aggressive tariff policies. Higher yields, impacting everything from mortgages to loan rates, are undermining a key objective of Trump’s economic policy – lowering borrowing costs to benefit consumers, as highlighted by Treasury Secretary Scott Bessent.
US dollar weakness. The US dollar can’t recover its safe-haven status. Instead, it has weakened as credibility around policymaking weighs on the greenback. Frequent policy changes and the uncertainty the Trump administration has created are causing harm across the board – from the US economy, its global standing to stock markets and the US dollar.
FX markets remain on edge. Safe havens faced significant selling pressure following the pause announcement, while EM and commodity-linked currencies, previously targeted amid a global trade war, made a robust recovery. However, as the week draws to a close, the flight to quality has re-emerged, exposing the vulnerabilities of cyclical currencies. Meanwhile, the year’s top-performing currencies have maintained their impressive upward momentum.
Week ahead
Inflation and central bank policy dominate focus
Inflation data. The upcoming week features key inflation readings from major economies. In the UK, CPI data for March will be released on Wednesday, with the prior YoY figure recorded at 2.8%. The Eurozone will also release finalized inflation data for March on the same day, with headline CPI consensus expectations at 2.2% YoY and MoM at 0.6%. In Canada, March’s CPI data is due Tuesday, with the prior YoY figure at 2.6% and MoM at 1.1%. These releases will provide insights into inflation trends and their potential impact on monetary policy.
Growth indicators. China’s GDP for Q1 2025 will take center stage this week, with the prior YoY growth rate recorded at 5.4%. Accompanying this report are March’s industrial production and retail sales figures, scheduled for release on Wednesday. Industrial production YoY was previously recorded at 5.6%, while retail sales YoY stood at 4.2%. In the US, retail sales data for March will be released on Wednesday, with the prior MoM figure at 0.2%. Additionally, the Empire Manufacturing Index (April) and industrial production data (March) will provide further insights into US economic activity.
Central bank decisions. The Bank of Canada is scheduled to announce its interest rate decision on Wednesday, with the current policy rate at 2.75%. On Thursday, the European Central Bank will deliver its rate decision, with the deposit facility rate previously at 2.50% and the main refinancing rate at 2.65%. These decisions will be closely monitored for their implications on EUR and CAD currency pairs.
Key labor market updates. On Tuesday, the UK will release its February jobs report, with most focus on private sector wage growth figures. Australia will release its March employment report on Thursday, with the prior unemployment rate at 4.1% and employment change showing a decline of 52.8k.
FX Views
Confidence crisis: traders ditch dollar
USD From safe haven to risk asset. The USD index is around 6-month lows and has dropped a whopping 2.6% this week – its worst weekly performance since late 2022. US stocks, bonds, and the dollar have all faced simultaneous declines, amplifying fears of a mass retreat by foreign investors from US assets. Long-dated Treasury yields have spiked, while the dollar has experienced its steepest drop against the euro and Swiss franc in a decade. Once considered the ultimate safe haven, US Treasury bonds are now under scrutiny as President Trump’s aggressive trade policies disrupt global markets. The introduction of reciprocal tariffs earlier this month has rapidly shifted the dollar’s status from a favoured currency to a gauge of risk aversion, reflecting growing uncertainty and diminishing confidence in US financial stability.
EUR Surges to 3-year high. The euro’s high liquidity and backed by a current account surplus continues to shield it from heightened volatility seen in high beta G10 peers. Being the second most liquid currency in the world and a preferred alternative to the dollar for FX reserves, the euro remains in a good position to benefit from any USD confidence crisis. Indeed, EUR/USD is on track for a second straight week of gains, up almost 4% over the period and over 11% from February lows. After Trump’s tariff pause, the pair dropped 1% but the common currency erased losses on the news the EU was also mulling a hold on its proposed countermeasure. Fair value is highly reliant on the two-year swap rate differential and purely from a rates perspective, EUR/USD looks overvalued given the ECB looks increasingly likely to cut next week, while the Fed still hasn’t given any signal to justify more easing. At first glance, there is probably a slightly downside-tilted risk for the pair, especially as it’s overbought. That said, if the ECB holds rates, the euro might get an additional shot in the arm. In fact, options traders are the most bullish on the euro in five years according to 1-month risk reversals.
GBP Gilt market is an Achilles heel. Sterling is becoming increasingly sensitive to market risk. No longer is it being dubbed a tariff safe haven. It continues to fluctuate against most of its peers in line with broader market sentiment and because the UK will not come away unharmed by a global trade war and economic slowdown. But the rebound in risk appetite after Trump’s tariff pause sent GBP/USD soaring around 2% in two days – back towards $1.30. Another key talking point this week was the meltdown in UK gilts though. The exaggerated moves in gilts, especially compared to Treasuries, suggests that there is pronounced stress out there. The UK’s finances are particularly vulnerable to moves at the longer end of the curve, and 30-year gilt yields jumped to 1998 highs this week. Usually, currencies move in tandem with yields, but the pound was declining in a sign that the gilt market remains an Achilles heel for sterling. Indeed, despite the 1-week change in UK-German yield spreads jumping by the most in two years, GBP/EUR’s 1-week change has been the biggest drop in three years. UK inflation data next week will also test the gilt market and the pound, especially if it prints higher than expected.
CHF Approaching intervention levels. The Swiss franc is experiencing a surge in demand, sparking speculation that the Swiss National Bank (SNB) may need to intervene or even push interest rates into negative territory to curb its rapid appreciation. The former runs the risk of it earning Trump’s ire given he already labeled the Swiss as currency manipulators in 2020. Still, the SNB might have to rein in further strength as the franc has emerged as the top-performing major currency, driven by a flight to safety. On a trade-weighted basis, the franc is nearing levels last seen in late 2023, a period when the SNB signaled its willingness to act against excessive currency strength. Meanwhile, the options market indicates further potential for the franc to strengthen, though Trump’s pause has eased such speculation for now.
CNY US-China tariffs escalate, volatile moves ahead. The US has clarified that tariffs on Chinese imports now total at least 145%, escalating trade tensions and adding to global economic uncertainty. China’s retaliatory measures, including significant tariffs on US goods, further highlight the strained relationship between the two largest economies. USD/CNH is testing resistance near 7.3500, a key level that could pave the way for further upside if breached. However, state bank intervention may limit excessive volatility. On the downside, support is seen at 7.2500, with a deeper pullback potentially targeting 7.2000. Key Chinese economic data, including GDP, industrial production, and retail sales, will provide insights into the broader impact of tariffs, while US-China trade developments will remain a key driver for the pair.
JPY BoJ’s Ueda signals data-dependent approach as Yen nears key support. BoJ Governor Kazuo Ueda has reiterated the central bank’s commitment to a data-driven approach, stating that rate hikes remain on the table if economic recovery continues. However, he also highlighted the need to monitor risks tied to global trade policies and macroeconomic uncertainties. This cautious stance suggests the BoJ is unlikely to make abrupt policy changes in the near term. USD/JPY is approaching a critical support zone near 140.00, which aligns with the 38.2% Fibonacci retracement of the 2020 rally and the lower boundary of its multi-year trading range. A break below this level could trigger further downside toward 138.50. On the upside, resistance is seen at 146.50, with medium-term resistance near the 150.50-151.50 zone. Japanese data releases, including industrial production, trade balance, and CPI figures, will be pivotal in shaping near-term yen dynamics and influencing the BoJ’s policy outlook.
CAD The 1.40 is here. Trump’s 90-day pause has offered some relief, easing tariff pressures on currencies like USD/CAD. However, fundamentally 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. On the macro side, tariff-related uncertainty has already negatively impacted the data, as reflected in the Bank of Canada’s Q1 business outlook survey.
Even as risk-off sentiment resurfaced to wrap up the week, the USD/CAD found itself drawn toward robust support zones in the 1.405–1.41 range. The Loonie traded this week as high as 1.429, ultimately, breaking the 40-week SMA and the crucial multi-year support level at 1.40, aligning with the 200-day SMA. Should it close below this threshold, further downside toward 1.394 becomes likely, though the current move appears overstretched in the short-term.
AUD RBA’s Bullock maintains cautious tone amid rising economic uncertainty. RBA Governor Michele Bullock has emphasized patience in assessing the economic impact of global trade tensions and domestic conditions, signaling that deep rate cuts are not imminent. The central bank remains focused on its dual mandate of price stability and full employment, while acknowledging the challenges posed by external shocks, including US trade policy measures. This cautious stance suggests the RBA is in no rush to adjust its policy trajectory. AUD/USD faced strong resistance near 0.6400 last week, retreating as risk-off sentiment dominated markets. The pair remains vulnerable to further downside, with key support levels seen in the 0.6000-0.6050 range. Momentum indicators suggest negative pressure persists, with no clear signs of reversal yet. Upcoming data, including RBA meeting minutes, unemployment figures, and labor force participation rates, will be critical in shaping expectations for the RBA’s next moves and the AUD’s direction.
MXN Risk-off hits the Peso. 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.
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.
If speculation against emerging market currencies continues, the peso may gain momentum above 21. However, throughout 2025, the area above 20.8 has failed to hold, with range-bound trading persisting. A decline in sentiment toward emerging markets could push the peso beyond its 2025 trading range. Short-term directions points to 20.4, with resistance at 20.7/8.
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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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