Instimatch - FX morning commentary - 24/4/25

Good morning

US-China trade-talk optimism, along with US President Trump’s reassurance that he won’t be firing Fed Chair Powell, have provided some reprieve for US equities, Treasuries, and the US dollar. The Trump administration has reportedly considered lowering tariffs on China to de-escalate trade tensions, which have weighed on global trade. Trump has suggested that tariffs on China may be “substantially” lowered if a trade deal is reached. One senior White House official said tariffs on China could come down to around 50%-65%, from current 145%. Also, another option being mulled over by the administration is to adopt a tiered tariff approach, whereby there will be 35% levies on strategic items and 100% on those goods tied to national security, to be phased in over 5 years. There appears to be a level of financial market instability that the Trump administration may not be willing to tolerate. China has signaled that the door for trade talks is “wide open”. However, US Treasury Secretary Scott Bessent said a US-China trade deal could take 2-3 years and there’s no unilateral offer from Trump to cut tariffs on China. This has somewhat pared back market optimism.

Meanwhile, US economic data shows some signs of a slowdown in the services sector, while manufacturing activity gathered pace in April. Services PMI slowed to 51.4 in April from 54.4 in March, below market expectation for 52.6 but still in expansion. The manufacturing PMI rose to 50.7 from 50.2, beating market expectation for 49.0. According to the Fed’s April Beige Book, concerns over tariffs have worsened the economic outlook across several regions in the US. Consumer spending presented a mixed picture, while the labour market showed signs of softening, with many districts reporting flat or slightly declining employment levels.

Today we receive the German Ifo index, and it will be interesting to see if it shows the same development as the PMIs yesterday. The Ifo index has an expectations component in contrast to the PMI, which should give a better reflection of the trade war impact. From the US we get weekly Initial jobless claims, seconded by the Chicago Fed National Activity Index, Durable Goods Orders, and Existing Home Sales.

The USD Index fell 0.3% to 99.69 in Asian trade compared to a correction low just below 98 on Monday.

The latest update of the ECB wage tracker continues to signal lower wage growth in 2025, further underscoring the case for additional monetary easing from the ECB. Looking ahead, markets continue to expect the ECB to deliver 25bp cuts at the upcoming meetings, bringing the deposit rate to 1.50% by September 2025. EUR/USD has found some support after its two day decline to trade near 1.1340.

GBP/USD is also edging higher to around $1.3270 in early European trading.  GBP remains vulnerable given stagflation and fiscal risks.

Japan’s Economy Minister Ryosei Akazawa will visit Washington from April 30 to May 2 to engage in a second round of negotiations concerning U.S. tariffs on Japanese goods, according to media reports published Thursday. Meanwhile, the FT reported on Wednesday that President Trump is planning to exempt carmakers from certain tariffs tied to Chinese imports and metals. Japan currently faces a 25% U.S. tariff on automobiles and a paused 24% duty on certain steel products.

These recent developments eased some concerns around trade tensions, pushing the yen higher. USD/JPY eased 0.4% to trade around 142.80.

USD/CNY pair rose 0.2% to 7.2977, while the offshore pair USD/CNH pair also edged higher to 7.2971.

USD/KRW pair rose 0.3% to 1,429.75. Preliminary data showed that South Korea’s economy unexpectedly contracted in Q1, weighed down by political unrest in the country and concerns around U.S. trade policies. GDP contracted 0.2%q/q, in contrast with expectations of a steady 0.1% rise.

Meanwhile, Singapore’s headline inflation was 0.9%y/y in March, unchanged from the pace in February. The core gauge slowed to 0.5%y/y, from 0.6% in February, below market expectations for 0.7%y/y. This was underpinned by slower price increases in utilities, household goods, and services. USD/SGD was largely muted after the data trading around 1.3145.

Bank Indonesia (BI) held its policy rate unchanged at 5.75% yesterday, in line with market expectations. Concerns about rupiah stability have likely led to the rate hold. Bank Indonesia is still expected to cut the policy rate by 50bp in the rest of this year, bringing the policy rate to 5.25% by end-2025.