U.S. Dollar Holds Ground, Stock Market Rebounds, Trump Holds Back

Overview:

The past week brought a fresh wave of volatility to global markets as the U.S. reignited trade tensions with new tariffs, prompting swift retaliation from China and the European Union. However, in a dramatic turn of events, President Trump reversed course on April 9, announcing a 90-day suspension of most of the newly announced tariffs—excluding those on China, which were instead increased to 125%.

• Trump’s Tariffs Spark Global Retaliation: Fresh 10% import tariffs reignited trade tensions, prompting swift retaliation. 
  • China struck back with $80B in tariffs; Europe reinstated $25B in duties.
  • U.S. tariffs on Chinese goods surged to 125%, deepening bilateral strain.
• Markets Rebound but Remain Cautious: Equities rallied on Trump's tariff pause, but volatility lingers. 
  • Chinese, Europe, U.S. indices rebounded strong.
  • USD trading sideways ahead of CPI and FOMC minutes.
• Inflation Data Looms Large: All eyes on March CPI today to gauge policy direction. 
  • Forecasts point to cooling headline CPI (2.6%) but sticky core (0.3% MoM).
  • A hot core reading may delay any Fed rate cut past June.
• Fed Balances Risks and Data: The Fed is patient but alert, slowing QT while holding rates steady. 
  • Market odds for a June cut hinge on today’s CPI outcome.

Trade War Heats Up: U.S., China, and Europe Exchange Tariffs

This unexpected policy pivot triggered a powerful relief rally in global equities, with Chinese and U.S. stocks rebounding sharply after days of heavy selling. While the market cheered the pause, the tariff hike on Chinese goods signals the trade conflict is far from resolved.

China Responds: $80 Billion in Retaliatory Tariffs + Market Rally

China wasted no time responding to the initial U.S. tariff barrage, imposing retaliatory duties on approximately $80 billion worth of American goods—a broad set of products designed to apply maximum pressure.

• Affected Goods: U.S. agricultural exports (soybeans, pork), industrial machinery, automobiles, semiconductors
• Tariff: 84%

But following Trump’s partial retreat on tariffs, sentiment across Chinese equity markets flipped. The Shanghai Composite and Hang Seng Index both surged on April 9, joining the global rebound. Investors took the tariff pause as a potential signal that negotiation channels could reopen, even though China remains the primary target of increased U.S. duties.

Europe Reacts: $25 Billion in Reinstated and Expanded Tariffs

The European Union reactivated previously suspended tariffs in early April, escalating the transatlantic trade dispute. As of April 9, retaliation affects around $25 billion worth of U.S. goods.

• Tariff Scope: Steel, aluminum, motorcycles, bourbon, textiles, and potentially U.S. tech, U.S. goods
• Tariff: 25%

The EU’s move signals a clear break from its wait-and-see posture, especially following the U.S. decision to resume tariffs initially paused under previous agreements.

Retaliation Totals (As of April 9, 2025)

Andy Sieg, Citi Head of Wealth: “Don’t buy the dip! Don’t invest in risk assets—yet.”

In a firm caution to investors, Andy Sieg, Head of Wealth at Citi, urged restraint amid a landscape still shaped by global volatility, geopolitical headwinds, and unresolved trade tensions.

Fed Watch: How Trade Wars Could Shift the Rate Path

The March 18–19, 2025 FOMC meeting revealed a Federal Reserve still walking a tightrope between containing inflation and maintaining financial stability. While the Fed held rates steady at 4.25%–4.50%, its subtle shift in policy tone—and especially the move to slow balance sheet reduction starting April—speaks volumes about its awareness of emerging downside risks.

Connecting the Dots: Fed Policy vs. Trade War Fallout

• Trade War as a Downside Risk: The FOMC statement subtly acknowledged “increased uncertainty around the economic outlook,” though it didn’t name tariffs directly. That now looks like an understated nod to what’s become the biggest macro headwind in April: retaliatory tariffs from China and Europe, and a 125% hike on Chinese imports by the U.S.
• Inflation Still Too High: Despite slowing QT, the Fed did not cut rates, reflecting concern that inflation—still above 2%—could be reignited by trade-related cost pressures (i.e., higher prices on imported goods due to tariffs). This keeps the Fed in a wait-and-see posture: dovish in liquidity, cautious on rates.
• Monetary Policy Buffering Geopolitical Shocks: The Fed may not be reacting directly to trade moves yet, but it’s clearly trying to stay flexible. Should tariffs drag growth lower, a rate cut could be back on the table. Markets are already starting to price in that possibility—especially after the initial USD decline earlier this week.

The Fed’s March moves—particularly slowing balance sheet tightening—have helped cushion April’s market volatility from trade wars. But if tariff retaliation spreads or starts showing up in real economic data, the pressure will mount for rate cuts in the second half of 2025.

All Eyes on CPI: Will Inflation Nudge the Fed Closer to a Cut or Hold the Line?

As markets head into Thursday’s U.S. session, focus is squarely on the March CPI release, due at 20:30 GMT, alongside the FOMC minutes earlier in the day.

Market Expectations:

• Headline inflation is expected to cool across the board, led by lower energy prices and goods disinflation.
• Core inflation, however, may prove sticky again, particularly in services, housing, and auto insurance.
• A hotter core MoM print (above 0.3%) would strengthen the case for the Fed to delay rate cuts past June.

If CPI matches or comes in below expectations, it gives the Fed breathing room. If it surprises to the upside—especially core—expect markets to reprice the rate path hawkishly.

4-Hour

As we await CPI for today, we are looking for the greenback to show its intent by:

• Respecting the Bullish FVG at 102.362 - 102.789
• Invalidating 102.362 - 102.789
• A test of both sides at 103.373 & 101.837

Tactical Game Plan for Majors

• Before 20:30 GMT: Expect range-bound or cautious trading until CPI hits.
• Tactical Approach: Wait for confirmed and sustained structure breaks and follow price action.
• If Dollar reacts for downside: trade against USD on Majors, focusing on EUR, GBP, CAD.
• If Dollar reacts for upside: trade in favor of USD, AUD, NZD, JPY.

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