As for now, we are still favoring the safe-heaven currencies like CHF and JPY, as well as the EUR, given it’s second liquid status. Expect the risk-off mode continue to drive the market week ahead.

The USD has remained under pressure since the announcement of new tariffs at the beginning of April. The continued selling reflects market uncertainty surrounding potential growth and rising recession concerns for the US economy. On trade policy, Trump announced a partial reversal of tariffs — with smartphones, computers, and other tech products reportedly exempted from the 145% tariff hike on Chinese goods, instead facing a reduced 20% rate. However, he later insisted that “nobody is getting ‘off the hook’” and that “there was no Tariff ‘exception’ announced,” before ultimately confirming the 20% figure. Additionally, he mentioned that the semiconductor tariff rate will be announced in the coming week. This type of policy reversal exemplifies the heightened level of policy uncertainty, which is likely to continue undermining confidence in US assets in the near term.

With limited domestic macroeconomic data released, market attention was primarily focused on speeches from Fed Chair Powell and Governor Waller. Starting with Waller, his remarks leaned dovish — stating that even if new tariffs sharply raise prices, the resulting inflation spike would likely be “transitory.” He further emphasized that in the context of a rapidly slowing economy, even if inflation remains well above 2%, the risk of recession would outweigh the risk of persistent inflation. In contrast, Powell struck a somewhat hawkish tone, emphasizing that the Fed must ensure tariffs do not lead to a more sustained rise in inflation. He noted the importance of making sure “a one-time increase in the price level does not become an ongoing inflation problem,” highlighting the Fed’s continued focus on inflation risks. Under normal market conditions, Powell’s hawkish stance might have supported the USD. However, the greenback remains weighed down by narratives of US asset underperformance and growth concerns — now arguably compounded by the Fed’s hawkish stance. Notably, Powell’s remarks had limited impact on US rate markets, which still anticipate the first rate cut to take place in June.

Looking ahead, the US economic calendar is relatively light, with the main focus being the April preliminary PMIs. However, tariffs will likely remain the dominant market theme. Even if PMIs surprise to the upside, their positive impact on the USD will be limited, as markets are expected to look past macro data unless there is a clear and positive shift in trade policy from the Trump administration. As such, the baseline outlook for the USD remains bearish. A sustained recovery would likely require constructive developments in trade policy, particularly with China.

EUR: Bullish

The EUR has been one of the top-performing currencies since the U.S. tariff announcement, outperforming even traditional safe-haven currencies like the JPY and CHF. The key driver behind this strength is the euro's status as the second most liquid currency globally and its role as a preferred alternative to the U.S. dollar in global FX reserves. For now, as long as market uncertainty over U.S. trade policy persists and sentiment remains negative toward the USD, the EUR may continue to assert dominance as the ‘King’ of the G10 FX space.

On the domestic front, the key event of the week was the ECB meeting. As widely expected, the ECB delivered another 25bps rate cut in April, bringing the policy rate down to 2.25%. In its latest MPS, the ECB removed the reference to policy being “restrictive,” suggesting that the stance has approached a broadly neutral level. However, President Lagarde maintained a meeting-by-meeting approach to future decisions. During the press conference, Lagarde placed significant emphasis on the downside risks to growth stemming from rising trade uncertainty, while noting that the inflation implications of these developments remain unclear. She clarified that no policymakers supported a 50bps cut, and stimulus discussions were not on the table. Regarding the removal of the term “restrictive,” Lagarde explained that assessing restrictiveness is currently meaningless, as the concept of a neutral rate is only valid in a ‘shock-free’ environment. Overall, the ECB communicated a slightly more dovish tilt than anticipated, with a stronger focus on growth risks over inflation pressures. This strengthens the case for further rate cuts ahead.

In terms of FX, the usual co-movement between exchange rates and rate differentials has weakened, largely due to eroding confidence in the USD following Trump’s trade policy moves. Should interest rate spreads once again become the main driver of FX, the dollar could recover. However, markets currently doubt this scenario, and a meaningful reversal in Trump’s trade policy would be required to trigger a sustained USD rebound. As a result, while the ECB has introduced some dovish signals, it remains a secondary driver for the EUR at this point, as broader market sentiment continues to be guided more by growth concerns than interest rate differentials.

Looking ahead, the eurozone calendar is relatively light, with the main highlight being the April preliminary PMIs. However, the overarching theme in the FX market will likely remain centered around U.S. trade policy developments. Therefore, barring any significant positive shifts in U.S.-China trade policy, the baseline outlook for the EUR remains well supported, particularly due to its status as the world’s second most liquid currency.

GBP: Bullish, but require strong catalyst

The GBP has not performed as strongly as expected in the aftermath of the U.S. tariff announcement. While often seen as a relative safe haven among pro-cyclical currencies—largely due to the UK’s limited direct exposure to U.S. tariffs—the pound has yet to register meaningful upside. For now, risk sentiment remains fragile, and GBP is likely to stay under pressure relative to traditional safe havens like the JPY and CHF, though it may outperform more volatile, high-beta currencies once market sentiment stabilizes.

Beyond trade policy, domestic developments have failed to provide a catalyst for sustained GBP strength in this uncertain environment. UK employment data was mixed and prompted little immediate reaction from the pound. Analysts at Capital Economics noted that "while wage growth remains too high, the increasing downside risks to inflation and economic activity stemming from U.S. tariffs may lead the Bank of England to shift its focus—from inflation concerns driven by pay growth to downside risks in overall activity." Furthermore, inflation data was generally weaker than expected, where headline CPI, services CPI, and CPIH all came in below forecasts, while core CPI remained in line but dropped 0.1ppt from February to 3.4%. Notably, services CPI slowed from 5.0% to 4.7%, falling short of the BoE’s projected 4.9%—a development likely to ease concerns about persistent underlying inflation. Overall, the data supports the BoE’s current guidance of easing policy in a “careful and gradual” manner, and markets continue to price in rate cuts on a quarterly basis.

Looking ahead, the UK calendar is relatively light, with attention turning to April preliminary PMIs and March retail sales. Given the ongoing market focus on tariffs and the UK’s relatively limited exposure to U.S. trade actions, both data points could serve as potential catalysts for the GBP during this uncertain period. In short, the baseline outlook for GBP remains well supported, though the currency is currently awaiting a clear catalyst to reassert its position as a relative safe haven among pro-cyclical currencies amid the prevailing macroeconomic uncertainty.

AUD: Bearish

The Antipodean currencies—particularly the AUD—have been notable underperformers since the announcement of new U.S. tariffs, primarily due to their high-beta nature and sensitivity to global risk sentiment. From a direct trade standpoint, Australia faces relatively limited impact, given its already low exposure to the U.S., and despite being subjected to a 10% tariff—currently under a 90-day pause. However, this pause has offered little relief to the AUD, as the broader concern lies in the spillover effects from escalating U.S.-China trade tensions. The AUD continues to trade as a liquid proxy for the Chinese yuan (CNH), making it particularly vulnerable to developments in the U.S.-China relationship. Notably, China is now facing cumulative tariffs of 145% from the U.S., and has retaliated by raising tariffs on U.S. goods from 84% to 125%. This intensifying trade conflict remains a key downside risk for the AUD in the near term.

On the domestic front, the March labor data continued to signal a tight labour market in Australia, with the unemployment rate steady at 4.1% and 32.3K full-time jobs added. Nonetheless, global factors continue to dominate the outlook for the AUD. In China, markets are increasingly expecting further RRR cuts from the PBoC in Q2 (at least 25bps), in response to growing external pressures from U.S. tariffs. This would add to the stimulus measures already in place—recall that in March, Beijing announced new fiscal measures, including a higher budget deficit target, and hinted at additional support to come. The Politburo is set to meet later this month to outline the near-term policy agenda. Should China's stimulus efforts sufficiently offset the impact of tariffs, or if the final U.S. tariff rate turns out lower than currently anticipated (which seems unlikely for now), these developments could help the AUD rebound—especially with support from improving risk sentiment, solid domestic fundamentals, a tight labour market, and a moderately hawkish RBA.

Looking ahead, the AUD calendar is quiet, with no major domestic events expected to move markets. Therefore, focus will remain on external factors—chiefly U.S.-China trade tensions. In the absence of any positive developments in U.S. trade policy, the AUD remains under pressure, with external risks likely to continue driving the currency in the near term.

NZD: Bearish

The Antipodean currencies—particularly the NZD—have been among the major underperformers since the announcement of new U.S. tariffs, largely due to their high-beta nature and sensitivity to global risk sentiment. From a direct trade perspective, New Zealand has relatively low exposure to the U.S. and is currently subject to a 10% tariff—now under a 90-day pause. However, this temporary relief has done little to support the NZD, as the greater concern lies in the spillover effects from U.S.-China trade tensions, given New Zealand’s deep trade ties with China. As a result, the NZD remains particularly vulnerable to developments in the U.S.-China relationship. China is now facing cumulative tariffs of 145% from the U.S. and has responded by raising tariffs on U.S. goods from 84% to 125%. This escalating trade conflict continues to pose a significant downside risk for the NZD in the near term.

On the domestic front, Q1 CPI in New Zealand accelerated slightly more than expected, rising to 2.5% y/y from 2.2% in Q4. The upside surprise was largely driven by domestic inflation pressures and domestic activity indicators also appear somewhat more upbeat. That said, despite the stronger inflation print, it remains within the RBNZ’s 1–3% target range, and is unlikely to shift market expectations, with the market still pricing in a 25bps rate cut in May. In China, expectations are building for further PBoC RRR cuts in Q2 (at least 25bps) to counter the external risks from rising U.S. tariffs. This would supplement previously announced fiscal stimulus measures, including a higher budget deficit target unveiled in March. The upcoming Politburo meeting later this month is expected to further define China’s near-term policy agenda. Should Beijing’s stimulus successfully offset the drag from trade tensions, or if U.S. tariffs are revised lower (though this appears unlikely at present), such developments could help stabilize or lift the NZD, especially alongside improving risk sentiment.

Looking ahead, the NZD calendar is quiet, with no major domestic events on the horizon. As such, market attention will remain focused on external factors—primarily U.S.-China trade dynamics. In the absence of any positive developments on the U.S. trade policy front, the NZD remains under pressure, with external uncertainties expected to continue dictating direction in the near term.

CAD: Neutral, but leaning to bearish

The CAD has remained an underperformer since the announcement of U.S. tariffs, despite Canada not being directly targeted—thanks in part to the protections offered by the USMCA agreement. However, when considering non-USMCA-related tariffs—including those on autos, steel, and aluminum—Canada still faces an effective trade-weighted tariff rate of around 12%. This represents a significant headwind for an economy so tightly integrated with global trade flows, and particularly sensitive to U.S. economic performance. As such, any increase in U.S. recession risks is likely to exacerbate CAD downside pressure, given Canada’s close alignment with the U.S. business cycle.

On the domestic front, March CPI data showed further disinflation, with headline inflation slowing to 0.3% m/m and 2.3% y/y. However, this was not sufficient to prompt a rate cut from the Bank of Canada, which opted to hold the policy rate steady at 2.75%. The BoC cited that the new U.S. tariffs have “increased uncertainty, diminished prospects for economic growth, and raised inflation expectations.” The central bank outlined two potential scenarios, which is a limited tariff environment, leading to a temporary growth slowdown with inflation remaining near 2% and a prolonged trade war, triggering a deep recession and pushing inflation above 3%.

Despite the BoC holding rates steady for now, markets continue to price in additional cuts, with expectations for 25bps rate reductions in both June and July. Additionally, the planned removal of Canada’s carbon consumption tax will likely lower inflation over the coming year, partially offsetting the inflationary pressures from higher U.S. tariffs and giving the BoC more room to ease policy. Overall, the baseline outlook for the CAD remains bearish, driven by heightened policy uncertainty surrounding U.S. tariffs and their knock-on effects on Canadian growth prospects. Without a material improvement in trade clarity or a reduction in external headwinds, the CAD is likely to remain under pressure in the near term.

JPY: Bullish

As a traditional safe haven, the JPY remains one of the most effective expressions of heightened trade tensions within G10 FX. Although President Trump’s announcement of a 90-day pause on reciprocal tariffs offered brief relief and supported a temporary rebound in USD/JPY, the rally quickly faded. Market confidence remains fragile due to the unpredictability of U.S. trade policy, and broad global trade uncertainty continues to dominate. Fundamentally, the yen remains supported in the medium term by rising (albeit modest) expectations for BoJ rate hikes, increasing risk of U.S. stagflation, and bilateral political resistance to excessive yen depreciation.

While BoJ tightening expectations remain muted, recent commentary from Governor Ueda and Board Member Nakagawa suggested that further rate hikes are likely, conditional on data evolving in line with the BoJ’s outlook. However, both flagged U.S. trade policy as a key external risk, leading analysts to delay their expected hike from May to July. At the same time, the continued volatility in U.S. trade policy contributes to broader market uncertainty, which is weighing on U.S. asset sentiment and boosting demand for the JPY as a defensive hedge. Moreover, growing political pushback against yen weakness from both Japanese and U.S. officials serves as an implicit floor under the currency. Notably, U.S. Treasury Secretary Bessent’s remark that “it is natural for the yen to appreciate” reflects a firm opposition to further JPY depreciation. Although Bessent and Japanese Cabinet Secretary Akazawa recently held talks without directly addressing FX levels, an official exchange rate discussion between Japanese Finance Minister Kato and Bessent is expected next week, which could offer near-term support to the yen.

Looking ahead, the JPY calendar is relatively quiet, with Tokyo CPI being the only notable domestic release. Inflation is expected to accelerate further from March, adding complexity to the BoJ’s near-term decisions—especially against a backdrop of intensifying trade risks. Still, the primary driver of JPY will remain external, centered around trade developments and potential FX policy coordination. Unless there is a significant de-escalation in trade tensions, the JPY is likely to remain well-supported and continue to outperform its G10 peers, particularly as a macro hedge in this uncertain environment.

CHF: Bullish

The CHF has emerged as the top-performing G10 currency following the announcement of Trump’s new tariffs, benefiting strongly from its traditional safe haven appeal. The intensification of U.S.-China trade tensions has further boosted demand for the franc as investors seek safety amid rising global uncertainty. While persistent strength in the CHF could eventually pose challenges for the Swiss National Bank (SNB), the risk of direct FX intervention remains perceived as limited for now. This cautious stance is largely driven by the potential political and diplomatic consequences of aggressive, one-sided intervention, especially the threat of being labeled a currency manipulator by the U.S. Treasury—an outcome that could lead to retaliatory tariffs on Switzerland.

Looking ahead, the CHF calendar is quiet, with no major domestic data or policy events on the horizon. As a result, the franc is expected to continue trading off broader global risk sentiment. In the current climate of elevated uncertainty and risk aversion, the CHF should remain well-supported. However, despite recent gains, the franc still stands as the most attractive funding currency in the G10 space. Should global risk sentiment improve significantly—particularly if the U.S. trade policy shifts in a more market-friendly direction—the CHF could gradually revert to its traditional role as a funding currency in carry trades.

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