Global FX Market Summary: Escalating Trade Conflict, Weakening US Dollar, Gold 9 April 2025

Escalating US-China trade conflict raises recession fears, weakens USD, boosts demand for safe-haven assets like gold and yen.

Escalating Trade Conflict and Recession Fears

The primary fundamental theme emerging from the news articles is the escalating trade conflict, primarily between the United States and China, and the subsequent rise in concerns about a potential recession in the US economy. This intensification began with US President Donald Trump implementing additional tariffs on goods imported from China. In direct response to these actions, China has announced and implemented retaliatory tariffs on US products, with the latest measure being an additional 84% tariff effective April 10th. Beyond the direct impact on these two nations, the European Central Bank (ECB) has revised its estimates, now anticipating a more significant negative impact on Eurozone economic growth due to these tariffs, potentially exceeding a 1% reduction. The growing apprehension surrounding the economic consequences of this trade war is reflected in the financial markets, where investors are increasingly betting on the Federal Reserve (Fed) to implement interest rate cuts in the near future as a measure to counteract a potential economic slowdown. The CME FedWatch tool indicates a substantial increase in the probability of a rate cut as early as May 2025, jumping from around 10% just a week prior to over 50%.

Weakening US Dollar

Another significant fundamental theme is the weakening of the US Dollar (USD) in response to the escalating trade conflict and the increasing fears of a US recession. The USD has come under considerable selling pressure, evident in the decline of the US Dollar Index (DXY) by approximately 0.7% and its testing of the 102.00 level. This broad weakness is further illustrated by the gains made by other major currencies against the Dollar, including the Euro (EUR/USD), the British Pound (GBP/USD), and the Japanese Yen (USD/JPY). The underlying cause of this Dollar depreciation is the growing concern among investors about the negative economic implications of the tariffs imposed by the US and the retaliatory measures taken by its trading partners, leading them to reduce their exposure to the US currency.

Safe-Haven Demand

The escalating trade tensions and the resulting economic uncertainty are fostering a strong demand for traditional safe-haven assets. Gold (XAU/USD) has experienced substantial gains, rising over 2% and trading above the $3,040 level, as investors seek a secure store of value amidst market volatility and potential economic downturn. Similarly, the Japanese Yen (JPY) is benefiting from these safe-haven flows, contributing to the weakening of the USD/JPY pair. Interestingly, even the Euro (EUR) has exhibited unexpected resilience and some characteristics of a safe-haven currency, potentially supported by the Eurozone’s current account surpluses and ongoing political developments within Europe. Furthermore, data indicates that Chinese investors have been increasing their allocations to Gold-backed Exchange Traded Funds (ETFs), highlighting the global investor preference for safe assets during this period of heightened trade war uncertainty.

Top economic events for this week:

• 04/09/2025 18:00:00 – FOMC Minutes (HIGH, USD): The minutes of the Federal Open Market Committee (FOMC) meetings offer a detailed account of the discussions and factors that influenced the Federal Reserve’s latest interest rate decision and its broader economic outlook. Investors and analysts closely examine these minutes to gain insights into the Fed’s future monetary policy intentions. Any signals about potential shifts in policy stance can significantly impact the U.S. Dollar (USD) and global financial markets.
• 04/10/2025 01:30:00 – Consumer Price Index (YoY) (HIGH, CNY): This data reflects the change in the cost of goods and services purchased by consumers in China over the past year. It is a crucial measure of inflation in the world’s second-largest economy. Higher-than-expected inflation could lead to expectations of tighter monetary policy from the People’s Bank of China (PBOC), potentially affecting the Chinese Yuan (CNY) and global trade dynamics.
• 04/10/2025 09:00:00 – RBA Governor Bullock speech (HIGH, AUD): Speeches by the Governor of the Reserve Bank of Australia (RBA) can provide valuable insights into the central bank’s current assessment of the Australian economy and its future policy direction. Governor Bullock’s comments could influence market expectations regarding interest rates in Australia, thereby impacting the Australian Dollar (AUD).
• 04/10/2025 12:30:00 – Consumer Price Index (MoM) (HIGH, USD): This release indicates the change in consumer prices in the U.S. on a monthly basis. It’s a key indicator of short-term inflation trends. A significant increase could fuel expectations of more aggressive monetary tightening by the Federal Reserve, leading to a stronger USD.
• 04/10/2025 12:30:00 – Consumer Price Index (YoY) (HIGH, USD): This measures the annual change in consumer prices in the U.S., providing a broader perspective on inflation. Persistently high readings can have significant implications for the Federal Reserve’s monetary policy and the value of the USD.
• 04/10/2025 12:30:00 – Consumer Price Index ex Food & Energy (MoM) (HIGH, USD): Known as core CPI, this metric excludes volatile food and energy prices to offer a clearer view of underlying inflation pressures in the U.S. It is closely watched by the Federal Reserve as a gauge of persistent inflation.
• 04/10/2025 12:30:00 – Consumer Price Index ex Food & Energy (YoY) (HIGH, USD): This represents the year-over-year change in the core CPI in the U.S. It provides a longer-term perspective on underlying inflation trends, which is crucial for the Federal Reserve’s policy decisions.
• 04/11/2025 06:00:00 – Harmonized Index of Consumer Prices (YoY) (HIGH, EUR): This is a standardized measure of inflation across the Eurozone, facilitating comparisons between member countries. It reflects the annual change in the price of a basket of consumer goods and services. High inflation readings across the Eurozone can put pressure on the European Central Bank (ECB) to consider tightening its monetary policy.
• 04/11/2025 09:45:00 – ECB’s President Lagarde speech (HIGH, EUR): Speeches by the President of the European Central Bank (ECB) are closely monitored for insights into the ECB’s current thinking on the Eurozone economy and its future monetary policy intentions. President Lagarde’s remarks can significantly influence market expectations for interest rates and the value of the Euro (EUR).
• 04/09/2025 12:30:00 – ECB’s Cipollone speech (MEDIUM, EUR): While categorized as medium impact, speeches by other key members of the European Central Bank’s Executive Board, such as Mr. Cipollone, can still provide valuable insights into the central bank’s views and potential future policy moves, thus influencing the Euro (EUR).

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