Written by the Market Insights Team
Hopes for “Fed put” fade
George Vessey – Lead FX & Macro Strategist
US Federal Reserve (Fed) Chair Jerome Powell’s firm stance on prioritizing inflation has dashed expectations for near-term interest-rate cuts. Yesterday, Powell dismissed concerns about disorderly market behaviour, emphasizing that there’s no immediate need for the Fed to intervene. Ironically, this hawkish approach could set the stage for more volatility today, particularly as the long holiday weekend approaches. Traders are expected to scale back their positions to mitigate risks from potential headline-driven shocks.
Indeed, recession odds are climbing even further due to the pushback on the timing of cuts too. This explains why all three major US equity indexes fell on Wednesday – the S&P by 2.24%, the Dow by 1.73% and the Nasdaq by 3.07%. Yields also moved lower, whilst safe haven gold stamped fresh record highs – now up over 25% year-to-date – its best start to a year since 1970.
Already under pressure from tariff and recession risks, US equities are also contending with the “death cross” pattern – a technical signal that some interpret as a harbinger of further downside. This pattern occurs when the 50-day moving average falls below the 200-day moving average. While the death cross is often seen as a turning point where a shorter-term correction may evolve into a sustained downtrend, historical data suggests it doesn’t always predict significant declines.
A murky economic outlook
Kevin Ford – FX & Macro Strategist
The Bank of Canada (BoC) decided to hold interest rates steady at 2.75% following seven consecutive rate cuts. Speculation about a potential further cut intensified leading up to the announcement, driven by softer-than-expected inflation data for March. This led to long USD/CAD positioning, briefly pushing the Canadian dollar closer to the 1.40 mark. After the BoC announcement, the pair dropped back below 1.39, dipping as low as 1.385. Following the BoC’s latest decision, the likelihood of another rate cut in the June meeting has climbed to 58%.
The central bank emphasized that it will adopt a cautious approach in the coming months as it evaluates both the broader economic landscape and the toll that ongoing tariffs are taking on the Canadian economy. Importantly, for the third consecutive meeting, the BoC reiterated that monetary policy alone cannot resolve uncertainties stemming from trade disputes. Governor Tiff Macklem reaffirmed the central bank’s commitment to price stability, stressing that despite the uncertain outlook, decisions will be driven by hard economic data in either direction.
Similar to other global central banks—such as the Bank of Japan, the European Central Bank, and the U.S. Federal Reserve—the BoC highlighted the challenges in delivering forward guidance amidst elevated uncertainty, particularly in inflation forecasting. However, the central bank outlined two potential economic scenarios tied to the duration of U.S. trade tariffs.
Scenario One: If tariffs are eventually negotiated away but the process remains unpredictable, caution among businesses and households could persist. In this case, GDP growth would stall in Q2 and recover only moderately, leaving inflation below the 2% target.
Scenario Two: A prolonged trade war could shrink Canada’s GDP in the second quarter, pushing the economy into a year-long recession, with inflation temporarily exceeding 3% by mid-2026.
Regardless of the scenario, one sector of the economy is already bearing the brunt of tariff pressures: the auto industry. General Motors has announced plans to lay off hundreds of workers at its Ingersoll, Ontario plant. This follows a two-week shutdown at Stellantis’ Windsor, Ontario facility, where operations are scheduled to resume during the weeks of April 21 and April 28. Meanwhile, the CAMI assembly plant, also in Ingersoll, has confirmed an extended shutdown lasting several months.
The economic outlook for Canada remains bleak. For the Bank of Canada, the question remains whether there will be room to further cut rates in its upcoming meetings as it waits for clearer data on the evolving and blurry economic climate.
Trade tensions overshadow retail sales boost
George Vessey – Lead FX & Macro Strategist
The US dollar index remained under pressure yesterday, flirting with the key 100 handle and near its lowest level in three years. President Trump’s escalating trade barriers, including a new probe into tariffs on critical minerals, have intensified concerns about US economic growth. These potential tariffs, alongside existing threats, have heightened fears of a recession, prompting outflows from dollar-denominated assets.
Earlier concessions on autos and electronics briefly slowed the selloff, but the dollar’s decline resumed as trade tensions with China deepened. The surge in US retail sales didn’t support either because it’s the future impact of tariffs that matters most. The overall tone of the report was stronger than expected as households rushed to purchase cars ahead of anticipated tariffs, yet restaurants and drinking places posted their largest jump since January 2023, indicating a consumer still willing to go out and spend. Nevertheless, the data failed to offset the broader pressure on the dollar even amidst softer inflation readings from Canada, the Eurozone, and the UK, reflecting the growing uncertainty surrounding US trade policies and their global impact.
The US economy faces four major shocks. First, higher tariffs on imports will reduce real disposable income, creating a demand shock. Second, surging policy uncertainty, particularly around trade, is unlikely to ease soon and is already curbing business investment. Third, global supply chain disruptions are intensifying as firms stockpile goods. Finally, tighter financial market conditions are emerging. Falling US stock prices, rising long-term interest rates, a depreciating dollar, and widening corporate bond spreads are dampening consumer spending and business investment. These combined shocks pose significant risks to economic stability.
Tariffs clear way for ECB cut
George Vessey – Lead FX & Macro Strategist
Money markets are widely anticipating another 25-basis point rate cut by the European Central Bank (ECB) today. After the March meeting, the ECB seemed set for a pause, but Trump’s trade tariffs have intensified growth risks, solidifying the case for ECB easing. While fiscal spending from Germany and the EU has improved the Eurozone’s growth outlook, it remains a distant prospect, and the focus now shifts to the ECB’s guidance for the months ahead amidst the tariff turmoil.
Markets expect the deposit facility to drop to 1.75% by Q4, with a possibility of further moves into accommodative territory. However, given the uncertain economic backdrop, the ECB is likely to maintain a cautious stance, keeping its options open. While the growth impact of tariffs is relatively clear, inflation effects remain uncertain and will depend on the evolution of the trade conflict.
What does this mean for the euro though? Strikingly, the correlation between short-term rate differentials and EUR/USD has disappeared since “liberation day,” with the currency pair careering over 5% higher despite the 40 basis point tumble in the German-US two-year yield spread. This adds to the evidence that European bonds and the euro are becoming preferred alternatives as confidence in US assets wane. While ECB rate cuts may marginally impact the euro, broader market dynamics tied to growth concerns are likely to play a more significant role. For now, EUR/USD is expected to find support at $1.13, with an upside target of $1.15 still on the table.
Sterling’s diverging paths
George Vessey – Lead FX & Macro Strategist
GBP/USD hit a six-month high yesterday, trading around $1.3250, but has since retreated slightly following Fed Powell’s comments. The circa 5.5% rally in cable year-to-date is mostly down to the weaker USD, driven by concerns over President Trump’s trade policies and their potential impact on the US economy. However, softer-than-expected UK inflation and labour market data this week has also weighed on the pound. This has cemented market expectations of a Bank of England (BoE) rate cut in May, with two more cuts fully priced in by year-end as well.
Against the euro, sterling has struggled more. The GBP/EUR pair reflects the pound’s relative weakness, as the euro benefits from higher liquidity and ongoing repatriation of financial assets into the Eurozone. The UK’s inflation data, combined with a deteriorating labour market outlook, has added to the pound’s challenges, though the pair has rebounded about 1% so far this week following last week’s aggressive selloff.
Overall, the pound’s movements this year have been shaped by mixed UK economic data, but largely due to broader global trade uncertainties. GBP/USD has seen gains due to dollar weakness, but GBP/EUR’s slide highlights the pound’s vulnerability amid global and domestic economic concerns.
EUR, NZD and CHF with +5% swing in seven trading days
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 14-17
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.
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