Instimatch - FX morning commentary - 14/4/25

Good morning

Over the weekend, the Trump administration issued important tariff exemptions on the imports of smartphones, semiconductors, and other key electronics items from reciprocal tariffs and the additional 125% tariffs on China, at first glance providing meaningful relief to consumers and the electronics sector alike. Nonetheless, this was yet another example of a policy announcement which sowed significant confusion among market participants and companies alike, with President Trump pledging to eventually apply a separate sectoral tariff rate to all these products.

Asian markets should receive the greatest benefit from these exemptions, temporary as they may be, with the exemptions expanding from the previous list of US$45bn focused on semiconductors to now more than US$380bn.

The likes of Taiwan for instance will see an additional 53% of its export basket exempted, followed by 28% for Thailand and Vietnam, 26% for the Philippines, and 25% for Malaysia. For China, this move would exempt around 22% of its exports to the US, and is significant for the US consumer both because the exorbitant 125% rates on China will not apply and also because China is a dominant producer for many electronics products with a lack of substitutes across countries and within the US in its domestic production capacity.

With risks of a confidence crisis in USD assets still lingering and several typical market correlations breaking down, the main focus remains on whether easing tariff headlines will be sufficient to stabilise the ongoing sell-off in the USD and Treasuries, as lost credibility may prove difficult to restore. The divergence between US and European rates has been striking during last week's trading sessions. 10Y Bund yields ended the week close to unchanged at 2.55% while 10Y UST rose more than 50bp to just below 4.50% during Friday's session. 

The USD index fell to its lowest levels since April 2022 overnight to around 99.62.  US recession risks are growing numbed by a general loss in confidence in the US (government), its hawkish trade policy and its deteriorating public finances. Several Fed officials are set to speak this week, most notably Chair Jerome Powell on Wednesday. 

EUR/USD is consolidating its recovery around 1.1385, up from 1.0882 at the start of last week.  In addition to tariff announcements from the Trump administration, this week, focus will be on the ECB meeting on Thursday. We expect the ECB to cut policy rates by 25bp and emphasise the downside risk to growth associated with tariffs.

GBP/USD retains its bullish momentum for now and is trading back above $1.3100 as the dollar remains under pressure.

The Japanese yen remained an outperformer, trading near its strongest level in six months as demand for safe havens remained relatively high. USD/JPY fell 0.3% to around 143.09 yen. 

This week will be eventful in CAD FX space, starting with the March inflation report on Tuesday, and culminating in the key event - the BoC meeting on Wednesday. Minutes from the last BoC meeting largely confirmed that the BoC would have paused in March if not for heightened tariff uncertainty. Markets are still marginally tilted towards the central bank leaving rates on hold, the risk is for another “insurance” 25bp cut.

USD/CNY pair rose 0.2% to 7.3078 following another weak midpoint fix from the PBoC. The pair remained close to a 17-year high hit last week. The PBOC set a weaker midpoint for seven of the past eight sessions, with Beijing seen bringing down the yuan to offset the impact of steep U.S. trade tariffs on the country. Trade data showed China’s trade surplus ballooned past expectations in March, with exports rising substantially before the imposition of steep U.S. trade tariffs on China. 

Singapore’s central bank announced its exchange rate policy decision, easing the slope of its policy band likely bringing it to 0.5% per annum from an estimated 1% currently, while maintaining the width and the level at which it is centred unchanged.  The guidance from the MAS was also dovish, indicating that Singapore’s output gap will turn negative, with the central bank also indicating that the risks to inflation are tilted towards the downside. Meanwhile, the MAS cut both its headline inflation and MAS core inflation forecast to 0.5-1.5% (down from 1.5-2.5% and 1-2% previously), with the government also lowering its 2025 GDP forecast to 0-2% from 1-3%. Overall, the impact from an FX perspective was relatively muted with USD/SGD steady around 1.3162.