Market participants shift focus from data to trading headlines
Traditional economic indicators have taken a back seat in influencing market movements, as the spotlight remains fixed on President Trump’s ongoing trade-related declarations and the swift responses from global economic powers.
The ongoing trade dispute between the United States and China has emerged as the principal catalyst behind the recent decline in the US Dollar and the concurrent surge in the Euro. However, the Pound Sterling has derived comparatively limited benefit from these movements, largely due to the simultaneous downturn in the US Treasury market — a key influence on the UK’s Gilt market.
US President Donald Trump instigated one of the most tumultuous trade confrontations in recent decades. On 2nd April — dubbed “Liberation Day” — he introduced sweeping reciprocal tariffs affecting more than 180 countries, with America's primary trading partners bearing the brunt. Merely a week later, he implemented a temporary 90-day suspension on the majority of these measures, beginning 9th April, although China was notably excluded. A general tariff of 10% remained in place across the board.
Further escalating tensions, Trump declared via Truth Social: “Given China’s blatant disregard for global market norms, I am hereby raising tariffs imposed by the United States on Chinese imports to 125%, effective immediately.” In retaliation, China announced an equivalent increase in its own tariff rate from 84% to 125%, effective Friday. This tit-for-tat escalation triggered a substantial sell-off of the US Dollar, propelling the EUR/USD pair to its highest level in months.
EU halts tariff retaliation amid trade tensions and recession fears
The European Union has also decided to temporarily suspend its retaliatory tariffs in response to the escalating global trade conflict.
EU Commission President Ursula von der Leyen announced that the bloc would delay the implementation of 25% tariffs on €21 billion worth of American imports for a period of three months, allowing space for diplomatic negotiations. “Should discussions prove unproductive, our countermeasures will be enacted,” she stated.
Investor sentiment fluctuated sharply in response to ongoing trade war developments. Optimism briefly returned following the EU’s announcement, but quickly faded as concerns resurfaced. Equity markets declined as the trading week drew to a close, with mounting anxiety over a potential recession in the United States that could ripple across other leading economies due to the broad imposition of trade tariffs. Market participants are also wary of increased inflationary pressures, which might prompt central banks to raise interest rates.
Despite traditionally being viewed as a safe-haven asset, the US Dollar weakened, as mounting fears of a recession began to outweigh its usual appeal in times of uncertainty.
The 90-day suspension is expected to be marked by intense diplomatic efforts as the US and its trading partners scramble to resolve disputes and forge more favourable trade arrangements. However, tensions between Washington and Beijing are likely to escalate further, keeping global markets on edge.
At the same time, the widespread introduction of tariffs is anticipated to fuel inflation both in the US and globally, potentially compelling major central banks to reassess their monetary strategies.
Looking ahead
Key releases are on the horizon. The US will unveil its March Retail Sales figures, while Fed Chair Jerome Powell is set to speak at the Economic Club of Chicago on Wednesday — an event that could offer fresh hints on monetary policy direction.
Also on Wednesday, market participants are closely monitoring the upcoming UK CPI release for indications of inflationary trends. Given the recent economic developments, including changes in fiscal policies and global trade dynamics, the data could influence expectations regarding future monetary policy decisions. Investors and analysts will be particularly attentive to any shifts in the inflation rate, as this could impact the Bank of England's approach to interest rates and economic growth projections.
On Thursday, the European Central Bank (ECB) is expected to announce its latest monetary policy decision. Markets broadly anticipate a 25 basis-point rate cut, but attention will be firmly placed on President Christine Lagarde’s post-decision remarks. Investors will be looking for any signal on whether the ECB plans to pause its easing cycle or continue amid inflation risks tied to the ongoing trade conflict. A dovish stance could strengthen the Euro, particularly given the general weakness of the US Dollar, although the reverse may also hold true.
With the Easter break approaching, the trading week will be shortened. Most financial markets will observe a closure on Good Friday & Easter Monday, adding to the likelihood of reduced liquidity and heightened volatility. Attention will continue to centre on President Trump’s ongoing trade pronouncements and the rapid reactions from major global economies.
