Instimatch - FX morning commentary - 15/4/25

Good morning

The Trump administration has initiated trade probes into semiconductor and pharmaceutical imports, under so-called Section 232 probes. The results of these investigations could play out for months but could ultimately lead to tariffs at some point in time. Nonetheless, what’s just as important for markets and the global economy in the meantime are the exemptions granted on electronics imports, coupled with news overnight that Trump is exploring possible exemptions for certain low-cost car components to give auto companies more time to set up US manufacturing.

Meanwhile, in dovish remarks, Fed Governor Waller said that even if new tariffs sharply raise prices, the resulting inflation spike is likely to be “transitory”, invoking a term last used during the pandemic while also emphasising his key view that this time is different. Governor Waller said that with a rapidly slowing economy, even if inflation were running well above 2%, he expects the risk of recession would outweigh the risk of escalating inflation – US Treasury yields declined following his perceived dovish comments. On that front, the NY Fed inflation expectations measure released yesterday pointed to a rise in near-term inflation expectations, but for what it’s worth longer-term measures remain well-anchored at least so far.

The ECB bank lending survey could be of interest today as we are approaching neutral monetary policy. The demand and supply of loans provide an indicator of how restrictive the policy still is. We will also get the ZEW survey outcomes from Germany and the Eurozone as a whole. The abundance of headlines circulating these days makes measuring sentiment challenging, but these data points could be the first to capture the impact from Trump’s tariffs. The expectations component for Germany is expected to drop from around 50 to just 10, which would bring us back to the levels before the large-scale spending announcements. In the US, the Empire manufacturing index is expected to improve from -20 to -12.

Overall, risk sentiment was strong overnight with the tariff exemptions on electronics, with key US tech names together with Asian equity markets rising together. From an FX perspective, the Dollar weakened further before some rebound through Asia time, with mixed performance across Asia.

The USD index has fallen by 0.40% in the past 24 hours to currently trade around 99.745

After bottoming near the 1.1300 level, EUR/USD has regained upward momentum, now hovering just below 1.14 amid signs of greater flexibility from the US administration on tariffs.  Looking ahead, focus turns to tomorrow's US retail sales and Thursday's ECB meeting. With a 25bp rate cut already fully priced, traders do not anticipate a meaningful market reaction from the ECB.

UK labour market data were close to consensus this morning and didn’t affect sterling. EUR/GBP finds a bid near 0.86 while, GBP/USD remains broadly supported climbing back above the $1.3200 level, its highest level since October 2024.

China’s trade data for March showed that exports rose sharply by 12.4%y/y, and likely due to US buyers rushing to ship in goods before higher tariffs started in April. Meanwhile, China’s imports remained weak declining 4.3%y/y likely due to soft domestic demand. The data suggests that traditional export goods such as textiles, furniture and toys, together with mechanical and electrical products rose sharply to the US, highlighting the front-loading effect. Meanwhile, inbound shipments such as iron ore dropped, likely reflecting US tariffs on metals, while other materials such as plastics, copper and coal also fell from their year-earlier level, suggesting that manufacturers reduced orders, while imports of consumer goods also declined.