Global FX Market Summary: US Tariffs, US Dollar Weakness, Safe-Haven Flows 7 April 2025

US tariffs on China cause market uncertainty, recession fears, and retaliatory actions, weakening the dollar and boosting safe-haven currencies.

Impact of US Tariffs on Markets and Economy

The imposition and continuation of US tariffs, particularly on China, are creating significant pressure and uncertainty in global financial markets. This is driven by concerns about potential trade wars, retaliatory measures from other nations, and the negative impact on economic growth and inflation. US President Donald Trump stated he would not make a deal with China unless the trade deficit is solved, and US Commerce Secretary Howard Lutnick confirmed the tariffs would remain in place for days and weeks. In response, China’s Foreign Ministry labeled the tariffs as “typical unilateral, protectionist bullying,” asserting that “threats and pressure are not the right way to deal with China.” The European Union is also preparing to announce a list of products for retaliatory tariffs. Federal Reserve Chairman Jerome Powell acknowledged that Trump’s tariffs are “bigger than expected” and risk higher inflation and slower growth. Consequently, market analysts, such as those at JP Morgan, are increasingly concerned about the US economy potentially entering a recession due to the tariffs, forecasting a 0.3% GDP decline. This apprehension has already manifested in global equity markets and US equity futures experiencing a sell-off due to concerns about a widening trade war.

US Dollar Weakness Driven by Tariff Concerns and Rate Cut Expectations

Despite positive US employment data, the US Dollar is facing downward pressure. This is largely attributed to the market’s apprehension about the economic consequences of the tariffs, leading to increased expectations that the Federal Reserve will need to resume its interest rate cutting cycle to support the economy. The US Dollar Index lost more than 1% for the previous week, and the USD faced “fresh supply” amid expectations that tariffs could cause a US economic slowdown, potentially forcing the Fed to resume rate cuts. Markets are pricing in a significantly lower probability (30%) of the Fed leaving rates unchanged in May, down from nearly 65% before the tariff announcement. The yield on the benchmark 10-year US government bond fell below 4.0%, suggesting reduced confidence in the US economic outlook. Even with a strong Nonfarm Payrolls report showing 228,000 jobs added in March, the USD’s gains were limited and short-lived, indicating that tariff concerns are overshadowing positive economic data.

Safe-Haven Flows and Currency Reactions

The escalating trade tensions and economic uncertainty are triggering “risk-off” sentiment in the markets, leading to increased demand for safe-haven assets like the Japanese Yen and potentially gold (though initially it saw profit-taking). Currencies of countries heavily reliant on global trade, like the Australian Dollar, are experiencing significant weakness. The Japanese Yen attracted fresh buyers and climbed closer to multi-month highs against the USD due to the “risk-off environment” and recession fears. The Australian Dollar declined sharply, reaching a five-year low, partly due to concerns about the Chinese economy (a major trading partner) and expectations of multiple interest rate cuts in Australia. Japanese officials, including the Chief Cabinet Secretary and Prime Minister, expressed concern about the impact of US tariffs on Japan-US economic relations and indicated they would continue to press the US to lower tariffs. Gold initially experienced a correction after reaching record highs, as investors sold across asset classes, but the expectation is that escalating trade actions will eventually bolster safe-haven buying for gold.

Top economic events for this week:

• 04/07/2025 09:00:00 EUR Retail Sales (YoY) (HIGH IMPACT): This data measures the percentage change in the total value of sales at the retail level compared to the same month in the previous year. It is a key indicator of consumer spending, which is a major driver of economic growth in the Eurozone. A high reading suggests strong consumer demand, potentially leading to inflationary pressures and influencing the European Central Bank’s (ECB) monetary policy decisions. Conversely, a low reading indicates weak consumer spending and potential economic slowdown.
• 04/09/2025 02:00:00 NZD RBNZ Interest Rate Decision (HIGH IMPACT): This announcement by the Reserve Bank of New Zealand (RBNZ) reveals the central bank’s decision on the official cash rate. Interest rate decisions are crucial as they influence borrowing costs, savings rates, and the overall level of economic activity. A rate hike can curb inflation but may slow growth, while a rate cut can stimulate the economy but risks increasing inflation. This decision significantly impacts the value of the New Zealand Dollar (NZD).
• 04/09/2025 02:00:00 NZD RBNZ Monetary Policy Statement (HIGH IMPACT): Released alongside the interest rate decision, this statement provides detailed insights into the RBNZ’s economic outlook, the factors influencing their interest rate decision, and potential future policy direction. It offers valuable context for understanding the central bank’s stance on inflation, growth, and employment, thereby influencing market expectations and the NZD.
• 04/09/2025 16:00:00 USD FOMC Minutes (HIGH IMPACT): These are the detailed records of the Federal Open Market Committee (FOMC) meetings, where the US central bank sets monetary policy. Released a few weeks after the actual meeting, the minutes provide a deeper understanding of the discussions, the rationale behind the decisions, and the individual views of committee members. They can reveal nuances about the Fed’s outlook on the economy and potential future policy shifts, significantly impacting the US Dollar (USD) and global financial markets.
• 04/10/2025 01:30:00 CNY Consumer Price Index (YoY) (HIGH IMPACT): This index measures the change in the price of goods and services purchased by consumers in China compared to the same period last year. It is a key indicator of inflation in the world’s second-largest economy. High inflation can prompt the People’s Bank of China (PBOC) to tighten monetary policy, affecting the Chinese Yuan (CNY) and global trade.
• 04/10/2025 09:00:00 AUD RBA Governor Bullock speech (HIGH IMPACT): Speeches by the Governor of the Reserve Bank of Australia (RBA) can provide important insights into the central bank’s current thinking on the economy and future monetary policy intentions. These speeches are closely watched by financial markets for any hints about potential interest rate changes or shifts in the RBA’s outlook, which can significantly influence the Australian Dollar (AUD).
• 04/10/2025 12:30:00 USD Consumer Price Index (MoM & YoY) (HIGH IMPACT): The CPI measures the change in the price of goods and services purchased by urban consumers in the US. Both the month-over-month (MoM) and year-over-year (YoY) readings are critical for assessing inflation. High inflation can lead the Federal Reserve to raise interest rates, strengthening the USD, while low inflation might prompt the Fed to ease policy. The core CPI, which excludes volatile food and energy prices, is also closely watched as it provides a clearer picture of underlying inflation trends.
• 04/11/2025 06:00:00 EUR Harmonized Index of Consumer Prices (YoY) (HIGH IMPACT): The HICP is a standardized measure of inflation across the Eurozone, used by the ECB to assess price stability. The YoY change indicates the annual rate of inflation. Similar to the CPI, a high reading can signal inflationary pressures, potentially influencing the ECB’s monetary policy and the Euro’s value.
• 04/11/2025 07:00:00 EUR Eurogroup Meeting (MEDIUM IMPACT): This is an informal body where the finance ministers of the Eurozone countries discuss and coordinate their economic policies. While the immediate impact on markets might be less direct than a central bank announcement, the discussions and any statements released can provide insights into the economic challenges and policy responses within the Eurozone, indirectly affecting the Euro.
• 04/11/2025 14:00:00 USD Michigan Consumer Sentiment Index (HIGH IMPACT): This index surveys consumers on their views of their personal finances and the broader economy. It is a leading indicator of consumer spending, as higher confidence generally translates to increased spending, which drives economic growth. A significant change in this index can signal shifts in consumer behavior and impact the USD.

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