ACM Update 07-04-25
Where to begin… Donald Trump’s so called “Liberation Day” last Wednesday caused (and continues to cause) an implosion in financial markets. US stock markets saw their worst week since Covid, whilst Asian markets are fell sharply today. Sterling-Dollar hit a six-month high on Thursday, then slumped well over 2% in the next 24 hours. Friday’s Non-Farm Payrolls release played second fiddle for once.
Will we see more extreme volatility this week? Quite possibly. There are further major US data releases to come, in the shape of the latest Federal Reserve meeting minutes and US inflation readings. Not to mention further tariff fallout. UK GDP rounds out the week on Friday.
What a week it was. April got off to a frantic and somewhat unbelievable start, as President Trump’s tariff announcements caused havoc worldwide. Some currency pairs such as USD-AUD saw movements of over 5% in a day, whilst GBP-USD oscillated within a 2.5% weekly range.
Making all the headlines last week, inevitably the focus was on the US where Donald Trump finally unveiled his range of tariffs. The President unveiled a plethora of taxes on imports, with no corner of the world spared. Even remote islands home to just penguins were imposed their own tariffs….
Wall Street’s main stock indexes suffered their biggest one-day percentage losses since the pandemic in 2020. In just a day, the Dow Jones fell by 4%, the S&P500 was down 4.8% and the NASDAQ lost 6%. These figures extended to 10% losses by the end of the week.
Despite all this, the President insists everything is going to plan and is urging Americans to be patient and trust the process. “Sometimes you have to take medicine to fix something” was his Sunday quote. Economists views varied, but the expression from one of “dropping a bomb” on the whole financial system, seems accurate.
FX market reaction consisted of two different phases. The initial reaction was a selloff of the US Dollar, in which it weakened to its worst in six months versus the Pound and Euro. This was largely down to fears about the US economy ongoing, with the tariffs expected to drive up the cost of living and have a detrimental effect on US growth.
However, by Friday morning, the trend reversed and we saw the Dollar recover all ground lost following the tariff announcements. This was then followed by a strong Non-Farm Payrolls figure for March, which demonstrated that the US jobs sector hasn’t been impacted (yet) by the threat of tariffs.
The payrolls figure came in at almost double the market estimate with 228,000 jobs added, thus recording the second-best figure in the last six months, only behind December. The overall unemployment rate did nudge up slightly though to 4.2%. A sign of things to come perhaps?
Federal Reserve Chairman, Jerome Powell, spoke in the hours after the jobs data. He raised concerns that the implemented tariffs were “larger than expected” thus he expects the economic ramifications of higher inflation and slower growth to be more significant also. Uncertainty remained the undertone of his speech, and that the Fed will face difficult decisions over the coming months. During Powell’s speech, Trump took to social media to declare it would be the “perfect time to cut rates”.
Above all, this is likely to remain an incredibly uncertain time to be buying or selling US Dollars. Any clients with such requirements should reach out to the Aston team to discuss the different solutions available.
The GBP-USD volatility last week can be seen in the chart below:
UK data was limited last week, thus the potential impact of British tariffs was a major driver. Despite the “special relationship” between the two countries, the UK was slapped with the baseline 10% tariffs. Sir Keir Starmer promised retaliation and has vowed over the weekend to protect UK businesses. The PM continues to seek a trade deal for the UK.
The majority of the £60bn worth of UK produce exported to the US last year fell into the categories of machinery, automotive and pharmaceutical sectors.
Bank of England policymaker Megan Greene also spoke last week on the topic of tariffs. She suggested that a trade war involving retaliatory tariffs would be “probably disinflationary” for the UK, although she stated that is just an early assumption. She also believes the Dollar’s status as a global reserve currency could be undermined by all of the uncertainty, and thus voiced concerns about how exchange rates will behave. A warning to Dollar clients!
Aside from this, there were a couple of releases related to the housing market. Mortgage approvals were down slightly in February, whilst house prices were flat in March according to lender Nationwide. Sterling lost ground overall as risk appetite in the market fell, combined with the projected impact from tariffs on 2025 Bank of England policy. Markets are now fully pricing in three further rate cuts before the end of the year.
As elsewhere, tariff implications caused movement on the Euro too last week. As is often the case, what is bad for the US is good for Europe, and this was indeed the case. As the Dollar weakened, the Euro gained strength for 24 hours of so before falling back.
Head of the European Commission, Ursula von der Leyen saw the new tariffs as a “major blow to the world economy”. Following the 20% levy, various corners of the bloc have already announced measures to combat the tariffs. The Spanish Prime Minister, Pedro Sanchez, has already responded with a €14.1bn plan to protect the country’s economy. A French government spokesperson said the country was ready for this trade war, whilst Christine Lagarde reiterated the measures aren’t good for the global economy.
On fundamental economic data, the latest CPI Flash estimate for inflation in the Eurozone recorded a welcome 2.2%, almost back to target. This in theory leaves the ECB free to focus on economic growth, barring any tariff ramifications. We should expect to see a further interest rate cut in the next ECB meeting in ten days’ time.
German data meanwhile continues its recovery. Retail Sales in the country were up month-on-month by 0.8% in February, and inflation seems to be beginning to cool.
Of the US Dollar, Euro and GBP, it was the Pound that took the brunt of the impact last week. Movements on GBP-EUR can be seen in the chart below:
The week ahead:
Monday – Eurozone Retail Sales (10:00 UK time)
Tuesday – BoE Lombardelli speech (17:00), Fed Daly speech (19:00)
Wednesday – Reserve Bank of New Zealand rate announcement (03:00), Federal Reserve meeting minutes (19:00)
Thursday – RBA Bullock speech (11:00), US CPI inflation (13:30)
Friday – UK GDP (07:00), US PPI inflation (13:30), US University of Michigan Consumer Sentiment & Inflation Expectations
Into the new week we go and into what seems like a new world of tariffs and trade wars. Despite countries scrabbling to make trade deal negotiations over the weekend, the chaos continues this morning. Predicting where FX markets will go at the moment is like predicting the behaviour of Trump, virtually impossible.
Aside from the fallout from last week US data fundamentals will also feature heavily this week. The minutes from the last Federal Reserve meeting are released on Wednesday evening and could well be an eye-opener for further thoughts on the state of the economy. Despite the mentioned meeting having only take place three weeks ago, a lot has changed in the interim.
The latest US inflation reading follows on Thursday lunchtime, projected to show a drop to 2.6% from 2.8% the month before. Again, worth noting that this is pre-tariff data for March. Consumer sentiment and inflation expectation data rounds out the week for the US on Friday.
For the EU, little data of note with just this morning’s retail sales release being significant. This showed a rise but by less than hoped. In the UK, a Tuesday speech by Bank of England policymaker Clare Lombardelli arrives, before the latest GDP reading on Friday morning. This is predicted to show that GDP grew by 0.1% in February, erasing the negative equivalent of the month before.
Aside all of this though, tariff talk is reshaping the world currently and will remain a major talking point this week. Prices will remain incredibly volatile and the Pound seems to be bearing the brunt of it at the moment. Until things become more stable, this trend is likely to continue.
Please make sure to reach out to the team to brief us on any pending requirements. This volatility will undoubtedly present opportunities, so the more awareness we have the better.
Have a great week.
