ACM Update 22-04-25

Written by: David Comber
Date posted: 22-04-25
Trump China Tariffs

The Trump drama continues…. Amidst countries scrabbling for trade deals with the US, the President continues to wreak havoc across global financial markets. The week prior to Easter saw gold at fresh highs over US-China trade war fears, whilst Trump took aim at Fed Chairman Powell over the weekend.

The European Central Bank’s interest rate cut on Thursday lunchtime almost went unnoticed, as did UK inflation slowing by more than expected in the March figures.

Another shorter week for European markets is likely to continue to be Trump-dominated. Economic events are slightly more limited, with a speech from ECB President, Christine Lagarde, and the release of the Federal Reserve’s Beige Book, the expected focal points. White House narrative may take over again though….

Whichever way you look at things, the US remains the major focal point of financial markets at present. Trump and his tariffs are continuing to drive not only the Dollar, but stock markets worldwide and a multitude of different currencies. The movements continued last week, as safe haven currencies remained strong.

The biggest safe haven of them all, gold, hit a fresh high last week having risen by around a third since the start of the year. The latest spike came off the back of comments from Fed Chairman, Jerome Powell, who suggested tariff policies are likely to have a detrimental effect on US growth, drive up inflation again and lead to risks in the US jobs market.

Over the weekend, we found out what Trump thought of such comments. He (maturely) declared Powell a “major loser” for not cutting interest rates “pre-emptively” to help boost the economy. The President suggested Powell had been consistently too slow in the past in responding to economic developments. Trump is currently blaming Powell for any pending slowdown in the US economy.

The comments led to a major sell off in the US Dollar yesterday (Easter Monday), whilst most European markets were closed for the bank holiday. The Dollar Index, a measure of the strength of the Dollar against a range of other currencies, fell to its lowest since 2022. Despite his threats, it doesn’t look like the President has the authority to remove Powell from his post.

The ongoing row between the two is unsettling financial markets, at a time where they desperately need the support. Yesterday’s quieter trading conditions saw GBP-USD go to within 0.1% of a three-year high, whilst EUR-USD hit a high of the same timeframe.

Aside from the civil war between Trump and Powell, the trade war with China still rumbles on in the background. The move from 10% to 145% tariffs imposed on China, is expected to really start hurting the economy there. But for Q1, the country published year on year growth of 5.4%, ahead of expectation. As with elsewhere, some of this has been attributed to orders being “front-loaded” prior to the incoming hike in costs.

As per the chart below for GBP-USD, the Dollar remains firmly on the back foot for now, trading around the aforementioned three-year high.

GBP-USD movements

Sterling enjoyed a slight recovery of its own at times last week, but mainly due to comments from elsewhere. US Vice-President JD Vance merely had to utter the words of there being a “good chance” of a UK-US trade deal being reached, and the Pound moved north at the start of the week. Vance suggested that the “reciprocal relationship” between the two was helping matters. Such is the nature of foreign exchange markets at the moment, that this small soundbite was a major driver for GBP last week.

In terms of economic data, the biggest update was with regards to UK inflation falling to 2.6% in March. The figure was down from the 2.8% in February and a slight improvement on the 2.7% that forecasts suggested. This marked a second monthly drop in a row, and was attributed to a drop in fuel prices, despite clothing costs going the other way.

UK Chancellor Rachel Reeves chirped up with her usual thoughts on the matter, interpreting it as a “sign” that the Government’s plan is on track, but there is “more to be done”.

What impact will this have on interest rates though, come the next Bank of England meeting on 8th May? Despite inflation falling closer to the Bank’s mandated 2% target, the knock-on effect on international trade from Trump tariffs is expected to drive inflation back up considerably.

As a result, we might well see Andrew Bailey and his colleagues sit on their hands in the upcoming meeting. Despite being barely a fortnight away, anything can change though in that timeframe in the Trump 2.0 era. Watch this space.

Other UK data last week included the February Unemployment & Average Earnings data, alongside March’s Claimant Count figures. Unemployment remained static for the third month in a row, whilst Average Earnings (wage growth) stuck at 5.6%. The latter is still well above inflation but cooling slightly. Claimant count figures came in nicely under the forecast.

In “normal” market conditions, last week’s European Central Bank meeting should in theory have been my main talking point from last week. But we are not in normal conditions at present. The ECB moved as expected to cut interest rates by a further 0.25%, to 2.40%. This marked six consecutive rate cuts in a row from Frankfurt, with the headline figure now over 2% lower than 12 months ago.

In her subsequent press conference, Christine Lagarde made a range of comments on the state of the Eurozone economy. She noted that inflation had declined in the bloc, but there was uncertainty on which way the figure would go. On one hand a strong Euro could help push down inflation, on the other higher import prices as a result of tariffs could increase it.

On the subject of growth, Lagarde noted that downside risks have increased, despite the flurry of rate cuts over the last year. Currently it looks likely that the ECB will be cutting interest rates again in their 5th June meeting, but that seems a long way away at the moment to speculate.

Aside from the ECB President’s mentioning of inflation, we had the latest CPI reading last week for the bloc too. This was confirmed as 2.2%, sitting now very close to the 2% target.

Economic sentiment figures have taken somewhat of a dive though since the Trump tariffs came into force recently. The Eurozone as a whole recorded its lowest ZEW economic sentiment figure since December 2022, with a heavily pessimistic reading. The German equivalent was similarly downbeat, as Europeans remain unsure of the potential trade impacts.

Despite major gains versus the Dollar last week, GBP-EUR remained on a relatively stable path beyond the euphoria of the US-UK trade negotiation progress early on in the week. Movements on the two can be seen in the chart below:

GBP-EUR last week


The week ahead:

Tuesday – ECB Lagarde speech & EU Consumer Confidence (15:00 UK time), IMF Meetings

Wednesday – UK Public Sector Net Borrowing (07:00), EU/UK/US Flash Manufacturing & Services PMIs (08:15-14:45), BoE Pill speech (11:30), Fed Waller speech (14:35), BoE Bailey speech (18:15), BoE Breeden speech (19:00), Federal Reserve Beige Book (19:00)

Thursday – US Unemployment Claims (13:30), BoE Lombardelli (14:25)

Friday – UK Retail Sales (07:00), SNB Schlegel speech (09:00), BoE Greene speech (15:15)

This week’s market events look likely to come from lecterns, as speeches seem to dominate the majority of proceedings. These come from central bankers in the form of ECB Chief Christine Lagarde, Bank of England Governor Andrew Bailey, as well as Chief Economist Huw Pill.

With IMF meetings taking place today and throughout the week, we have already seen global growth forecasts slashed for 2025, with the US given the largest downgrade. The committee suggests growth in the US will be a mere 1.8%, down from 2.7% in its previous estimate. The UK meanwhile loses half a per cent, projected to expand by just 1.1%.

The Federal Reserve’s Beige Book is the main data point of the week, containing the data used by Federal Reserve policymakers in their next meeting (a fortnight later). We can expect a somewhat gloomy set of figures, with the Fed in a quandary as to what to do. Help the economy with a rate cut, put rates up in case inflation spikes, or the third option of wait and see. The latter seems the most likely at this stage.

Amidst the raft of Bank of England speeches, we also have UK Retail Sales data out on Friday morning, as well as the usual range of PMI Services and Manufacturing releases on Tuesday.

Markets will remain at the mercy of Trump and his tariffs, whilst daily swings of 1% and weekly moves of 3% plus become the norm. To protect yourself against such risks, reach out to the Aston team for more information on our product offerings, such as spot contracts and limit orders.

Have a great week.