Instimatch - FX morning commentary - 29/4/25

Good morning

It was a relatively quiet start to the week, with the US Dollar weakened and US Treasury yields continuing to drift lower, following the announcement of the Treasury funding projections for Q2 and Q3. The 2Y US Treasury yield declined by 6bp, the 10Y yield fell by 3bp, and the 30Y yield was down by 2bp, resulting in a modest steepening of the US yield curve.

The US Dallas Fed Manufacturing activity index fell to the weakest since 2020, with executives using words such as “chaos” and “insanity” to describe the turmoil from tariffs. Almost 60% of respondents said higher tariffs would negatively impact their business this year, with a majority saying that they would pass higher costs onto customers and 38% saying it’s becoming harder to do so.

The weak Dallas Fed data numbers add to a collection of evidence including sharp declines in container bookings highlighting a slowing US economy and rising inflation pressures – stagflationary conditions that come with a huge negative supply side shock for the US from tariffs. For the rest of the world including China, it is however a negative demand side shock, bringing about lower growth and lower inflation. This is even as Chinese authorities have been highlighting that they have substitutes for supply of imports from the US such as soybeans and grains, and they are also trying to diversify sources of end-demand for Chinese goods including domestically. The press briefing by Chinese authorities yesterday on stimulus measures however struck a tone of confidence and calm on the current trajectory, announcing more details and expansion of measures largely based on existing plans, while also highlighting a preference for a stable currency. 

Today, attention will turn to the US JOLTs job openings and Conference Board consumer confidence figures. While consensus expects another downtick in US consumer confidence, job openings are forecast to remain relatively steady. In Europe, focus will be on the release of regional CPI data ahead of the euro area aggregate inflation print on Friday, with Spain's CPI figures out today.

The USD index moved little in Asian trade holding steady around 99.25 but still in sight of its three-year low hit earlier in the month.

EUR/USD remains stable in the 1.13-1.14 range. So far in April, the USD has weakened against all G10 currencies, with the EUR up more than 5% — notably in an environment where CHF, JPY, and gold have appreciated by 4-7% against the USD.  Although policy uncertainty may have peaked, traders see the recent rally in the USD as fragile and continue to favour buying EUR/USD.

Sterling had a nice run. EUR/GBP was (and still is) testing the 0.85 area. The White House yesterday said trade talks with the UK are moving in a very positive direction. GBP/USD is under modest selling pressure pair around $1.3425 during the early European trading, pressured by a modest rebound of US Dollar. Traders await a speech by BoE Deputy Governor for Markets and Banking Dave Ramsden for fresh impetus.

Canada's Liberal Party secured a fourth consecutive term, with Mark Carney elected Prime Minister, as widely expected. At the time of writing, Liberal candidates have been elected in 150 of 343 seats. However, it is still too soon to ascertain whether the Liberals will form a majority government, with the threshold for a majority at 172 seats. In the near term, traders expect USD/CAD to tick down to 1.37, given stretched short CAD positioning. 

A market holiday in Japan made for softer trading volumes in the region. 

USD/JPY pair rose 0.3% to 142.46 following a bout of profit taking on long JPY positions. The BOJ is set to meet later this week and is expected to keep rates unchanged amid heightened economic uncertainty. But the BOJ could still signal further monetary tightening, especially as Japanese inflation rose sharply in recent months. 

The Chinese yuan firmed overnight, with USD/CNY falling 0.3% to around 7.2744. Chinese PMI data for April is due tomorrow and will offer a good indication of business activity in the face of the Sino-U.S. trade war. 

AUD/USD pair eased 0.1% to $0.6414, with focus turning to Q1 consumer inflation data also due tomorrow. The reading is widely expected to factor into the RBA’s outlook on interest rate cuts, with analysts projecting a sustained decline in inflation will elicit more easing.