Instimatch - FX morning commentary - 17/4/25

Good morning

Fed Chair Powell struck a somewhat hawkish tone by saying that the central bank must ensure that tariffs don’t trigger a more persistent rise in inflation, to “make certain that a one-time increase in the price level does not become an ongoing inflation problem”. These hawkish comments were interesting as they showed some divergence within the FOMC, with Governor Waller for instance saying that the one-off price increase from tariffs should ultimately mean a sharper slowdown in growth and as such more space for rate cuts in time to come. Equity markets fell with Chair Powell’s comments coupled with the recent curbs on Nvidia chips to China, although US rates markets interestingly did not move too much on the back of Fed Chair Powell’s remarks.

Meanwhile, Bloomberg news reported that China wants to see a number of steps from President Trump’s administration before it will agree to trade talks, including showing more respect by reining in disparaging remarks by members of his cabinet, a more consistent US position, coupled with a willingness to address China’s concerns around American sanctions and Taiwan. In addition, Beijing also wants the US to appoint a point person for talks who has the president’s support and can help prepare a deal that Trump and President Xi Jinping can sign when they meet.

It remains to be seen whether the existing gulf in expectations between the two powers will be met, with the White House Press Secretary stating Trump’s expectations for China to make the first move as China “needs to make a deal with us”.

Overall, risk sentiment remains somewhat negative with equity markets falling while Asian currency performance was mixed. The USD index was steady overnight at 99.5 but looks vulnerable should US equities underperform again.  Some key US data releases are due today, including Building permits, Housing Starts and Initial Jobless claims.

EUR/USD is seeing some early European selling interest around 1.1365.  Traders though have already turned their attention to the ECB rate decision later today where another 25bp rate cut to 2.25% is widely expected in addition to the dropping of any reference to a restrictive policy rate.

GBP/USD has eased from a six-month high of $1.3292 to around $1.3230 after the softer than expected inflation reading yesterday.

The 8% gain for the safe-haven Swiss Franc since April 2 is the largest among the G10 currencies and USD/CHF is trading around 0.8151 and seen testing strong resistance at a 10-year high at 0.8100.

The Bank of Canada left its policy rate unchanged at 2.75% yesterday. It’s the first pause since it embarked on an easing cycle in June 2024. The central bank offered no guidance for future policy, only that it will proceed carefully. Some 40% of a rate cut was priced in going into the meeting yesterday, triggering minor CAD appreciation after the status quo decision. Money markets now expect less than two additional rate cuts for this year.

U.S. President Donald Trump said “big progress” was made during a meeting with a Japanese trade delegation in Washington on Wednesday, as the two nations opened talks aimed at resolving tensions over a wave of U.S. tariffs.

Japanese export growth slowed in March, and US tariff headwinds intensify are sure to accelerate the downshift, focus is now very much on trade talks with the US. Exports rose for a sixth straight month in March up 3.9%y/y (vs 11.4% in February but below market consensus for a reading of 4.4%).  The JPY is expected to remain one of the outperformers in the FX market, but further volatility is likely, though depending on trade discussions.  USD/JPY has bounced back above 142.00 after hitting a seven-month low at 141.62 overnight.

In Australia, data showed that the country’s labour market remained tight with a rebound in employment and a slightly higher unemployment rate. The unemployment rate rose to 4.1% in January, from 4.0% in Feb, but was below forecasts of a 4.2% growth.  AUD/USD is holding steady around $0.6340.

USD/CNH remained around 7.300 levels, while the likes of KRW (-0.3%) and SGD (-0.15%) underperformed. 

The Bank of Korea left rates unchanged at 2.75%, citing heightened trade uncertainty, volatile currency markets and rising household debt. However, its monetary policy stance remains dovish amid growing growth concerns and a cut in May looks likely but the level of the Korean won exchange rate is key.