Instimatch - FX morning commentary - 28/4/25

Good morning

Last week ended relatively quiet, with risk appetite holding up reasonably well, while US Treasury yields continued to decline. The 2Y US Treasury yield fell by 5bp, while both the 10Y and 30Y segments declined by 8bp. At the current juncture, the USD shows the highest positive beta to tariff de-escalation headlines within the G10, and any renewed shift in the administration's trade policy stance toward a more restrictive direction could prompt further USD selling.

Today’s economic calendar lacks market moving potential, adding to the argument for further consolidation. That does change from tomorrow on though with the JOLTS job openings and Conference Board consumer confidence due in the US and the first national CPI and Q1 numbers in the Eurozone. The EMU growth number is scheduled for release on Wednesday as is that for the US, accompanied by PCE inflation. Thursday’s headliners are the US manufacturing ISM and the Bank of Japan with April payrolls the focus on Friday. The heavy, back loaded economic calendar offers an opportunity to check whether economic data, especially in the US, will have regained importance compared to the previous weeks.

Traders largely digested mixed signals on trade talks from Washington and Beijing, with comments from US Treasury Secretary Scott Bessent adding to doubts that negotiations were taking place. Bessent on Sunday said he did not know whether Trump had spoken to Chinese President Xi Jinping over the trade war, and that recent dialogue with Chinese officials had taken place under the International Monetary Fund, and not as trade negotiations. 

The dollar index rose about 0.2% to 99.47 in Asian trade but remained close to a three-year low hit earlier this month. The Fed entered its blackout period on Saturday ahead of its May 6-7 FOMC meeting, leaving markets to trade off incoming data and political signals.

EUR/USD has consolidated below the 1.14 level around 1.1370, supported by positive headlines on US-China de-escalation and a more measured tone from the Trump administration regarding Fed independence. Markets may interpret these developments as signalling 'peak economic policy uncertainty,' though this remains highly questionable - as evidenced by the short-lived relief rally following the initial 90-day tariff pause, which was quickly followed by significant Chinese tariff hikes.

The Japanese yen firmed slightly in Asian trade, with the USD/JPY pair easing 0.1% to 143.40. Focus this week is firmly on the BoJ meeting, with the central bank widely expected to keep rates unchanged. Traders will be looking closely for accompanying testimony from the BOJ for clarification for future policy, as it navigates an environment of rising domestic inflation and heightened global trade uncertainty. 

Today, focus on Canada is on the federal election. Both polls and prediction markets see the Liberals as the projected winners, with PM Carney assigned a 79% probability of becoming the victor. However, traders suggest the market impact of the election will be muted, overshadowed by tariff uncertainty and the global investment environment.

The Chinese yuan weakened overnight, with the USD/CNY pair rising 0.1% to around 7.2946. But further weakness in the yuan was limited by a stronger midpoint fix from the PBOC.

China’s Politburo last Friday pledged to “fully prepare” emergency plans to defend against external shocks, and to set up new monetary policy tools and policy financing instruments to boost technology, consumption and trade. In addition, the Politburo said that China must keep improving the policy toolbox to stabilise employment and the economy and launch measures already planned at an earlier date, while carefully “pick the timing” for rate cuts. These stimulus announcements are no doubt a step in the right direction, with more details likely to come out of a press briefing held later. Nonetheless, the tone from China’s top leadership seemed somewhat calmer than the markets are perhaps expecting, suggesting the focus for China remains on executing the existing stimulus plans with a focus also on medium and long-term reform plans. 

China’s government is reportedly considering suspending its 125% tariff on some US imports, including goods such as medical equipment, industrial chemicals such as ethane and tariff of plane leases. In addition, Chinese business magazine Caijing reported that China has waived its retaliatory 125% tariff on certain semiconductor imports from the US, citing industry sources. 

AUD/USD pair fell 0.1% to $0.6405 ahead of key quarterly inflation data due later this week. The South Korean won’s USD/KRW pair rose 0.2% to 1,438.58, while the Singapore dollar’s USD/SGD pair fell 0.1% to 1.3133. Singapore released its industrial production estimate for March, which came in weaker than expected at -3.6%m/m sa and 5.8%y/y. We will get some initial indication of the impact on export orders in upcoming Asia PMIs.