Instimatch - FX morning commentary - 27/3/25

Good morning

The Eurozone data calendar has little to offer today besides the ECB’s M3 data. But there will be a busy slate of ECB speakers again including Schnabel, de Guindos, Wunsch and Villeroy.

The US will release the usual weekly jobless claims data where no big changes are anticipated. The advance goods trade balance will probably get the most attention, though, as this was the release pushing the Atlanta Fed’s “nowcast” into contractionary territory. The US will also release third readings for Q4 2024 GDP. From the Fed, Barkin and Collins are scheduled to speak.

US President Trump has announced 25% tariffs on all cars not made in the US, broadening the trade war with the rest of the world. Mexico, Japan, and South Korea are the most exposed, accounting for more than 60% of US imports of new passenger vehicles and light trucks. For now, USMCA-compliant automobile parts will remain tariff free. Trump has said that the auto tariffs will remain throughout his 4-year term, and that he’s not interested in any negotiations for exemptions. Auto tariffs will take effect on 2 April.

Trump also indicated that tariffs on pharmaceutical goods could come soon. Pharmaceutical exports to the US make up 2% of GDP in Switzerland, around 0.75% of GDP in the Eurozone and Denmark and about 0.50% of GDP in Sweden, which means the CHF, EUR, DKK, and SEK at first glance look the most vulnerable to a pharma tariff. Other tariffs, e.g. reciprocal tariffs, car tariffs etc. may overshadow the pharma tariff's FX impact though.

Fed’s Kashkari has said that there are lots of tariff uncertainty and market sentiment shifts around tariff headlines. The hit to confidence could be larger than the tariffs themselves. Fed’s Musalem has also warned about the risks of persistent tariff inflation with second-round effects that could keep the Fed on a prolonged rate hold.

US durable goods orders rose 0.9%m/m in February, following an upward revised 3.3%m/m in January, as manufacturing firm’s frontloaded their procurement ahead of tariff hikes.

The DXY dollar index has found some support under 104.00 helped by a little more stability in US asset markets. DXY fell 0.3% in Asian trade to 104.27 after gaining in the previous session.

EUR/USD, having initially traded heavily, recovered losses on the tariffs news and is back trading below 1.08 at 1.0775. Money markets apparently are still embracing the idea of a ‘frontloaded’ April ECB interest rate cut (75% discounted).

It was an eventful day for GBP FX with February inflation out in the morning and the UK Spring Statement out in the afternoon. Inflation came into the low side with headline and core inflation lower than expected. Inflationary pressures eased and inflation is currently at or below the BoE's expectations, paving the way for another cut at the upcoming meeting. There will be another inflation print before the next meeting in May. While the softer inflation data sent EUR/GBP higher, the Spring Statement from the UK government proved surprisingly muted for the cross. UK yields eased between 1.1bp (2-y) and 6.0 bp (30-y), EUR/GBP pair closed at 0.8345.

USD/JPY has also partially reversed some of their prior day’s losses, rising by 0.4% to 150.41 following a 0.5% drop, amid a broad US dollar rebound. BoJ Governor Ueda has said he is keeping optionality ahead of next policy meeting, without hinting at when the bank will raise rates. That said, he has reiterated that the bank will normalise rates if the economic and inflation outlook is realised.

Asian currencies were slightly higher after a series of declines. USD/CNY edged down 0.1% to 7.2637, while the offshore pair USD/CNH fell 0.2% to 7.2706.

AUD/USD rose 0.2% to $0.6318, a day after a weaker than expected inflation print raised expectations of further RBA rate cuts.

USD/IDR pair inched 0.1% lower to around 16,550.8, but remained near its 27-year high reached earlier this week.