USD soft on stagflation risk. EUR firm on reserve demand, ECB tone. GBP steady, sticky inflation. JPY and CHF strong on risk-off. AUD and NZD weak on China spillover, dovish tone. CAD pressured by weak data, BoC risk.

EUR: Bullish

The EUR has been one of the best-performing currencies since the U.S. tariff announcement, outperforming traditional safe haven currencies such as JPY and CHF. The primary reason lies in its status as the second most liquid currency in the world and its role as a preferred alternative to the dollar for global FX reserves. At the same time, market participants appear relatively optimistic that the EU is not inclined to escalate trade tensions with the U.S., particularly after the EU agreed to a 90-day pause in countermeasures that were scheduled to take effect on April 15. Additionally, the prospect of increased fiscal spending across Europe—especially in Germany—has added structural support to the euro, making it more attractive than in previous years.

 

Looking ahead, the market's attention will shift to the April ECB meeting, where a 25bp rate cut is fully priced in, despite the presence of some divergent views among Governing Council members. The primary focus will be on forward guidance and updated economic projections. On the guidance front, markets will be watching for any indications that the ECB is preparing to wind down its easing cycle in the coming months. On the projections side, this will be the first meeting to include new staff economic forecasts, which are expected to factor in Germany’s anticipated fiscal stimulus—likely resulting in upgrades to the ECB’s medium- and long-term growth and inflation outlooks. As a result, the meeting could deliver another “hawkish cut,” potentially leading to further euro strength. Beyond the ECB meeting, market participants will also closely monitor trade developments. As long as trade tensions persist and the “sell America” theme continues to build, euro-area assets may stand out as one of the few viable destinations for capital rotating out of U.S. markets—offering additional support to the EUR.

 

In short, barring a strong resurgence of the “U.S. exceptionalism” narrative—characterized by robust U.S. growth, a resilient consumer, and subdued inflation—and assuming Europe does not fall short in its efforts to reform and stimulate its economy, the baseline outlook for the EUR remains bullish, given it’s simply the world’s second most liquid currency in such crisis.

USD: Bearish

Over the past week, the USD has remained under pressure following the announcement of new tariffs, gradually losing its traditional safe haven status. The primary driver can be attributed to the combination of an unnecessary trade war and a series of increasingly uncertain policy decisions, which are significantly eroding both consumer and business confidence. As a result, any potential USD-positive impulses are being outweighed by rising concerns over slower growth. Although Trump announced a 90-day pause on reciprocal tariffs, it has done little to support the USD. This is largely because a minimum 10% tariff floor remains in place during the pause, and China is excluded from this suspension—facing an additional 25% tariff hike. This brings the total tariffs to 145%, further escalating trade tensions and triggering continued USD sell-off. Despite the temporary tariff easing, global trade uncertainty remains elevated due to the unpredictability of Trump’s protectionist agenda. This environment is likely to continue weighing on business sentiment and delaying investment decisions as firms await greater clarity on U.S. trade policy. Overall, as long as trade tensions persist, the USD is expected to stay under pressure for the time being.

 

On the domestic front, the latest CPI and PPI releases have added further downward pressure on the USD. U.S. inflation slowed to 2.4% y/y in March, down from 2.8% y/y in February—below the market expectation of 2.5%. Core CPI (excluding food and energy) also eased to 2.8% y/y from 3.1% in February. On a monthly basis, headline CPI fell by 0.1%, while core CPI increased by only 0.1%, down from 0.2% previously. The March inflation report came as a welcome surprise and seemingly gives the Federal Reserve more flexibility should economic growth continue to soften. Additionally, headline PPI declined by -0.4% m/m from 0.1%, while y/y dropped to 2.7% from 3.2%. Core PPI also fell by -0.1% m/m from 0.1%, with the y/y measure easing to 3.3% from 3.5%. This soft inflation print points toward a subdued Core PCE reading as well, especially with the sharp drop in airline fares—an influential component of PCE—likely dragging prices lower. Most components came in softer than the previous month, except for Nursing Home Care, which ticked up to 0.2% from 0.1%. Following the CPI and PPI data, Pantheon Economics noted that the numbers imply a 0.13% m/m increase in the core PCE deflator for March, reducing the y/y rate to 2.6% from 2.8%. While the data suggest that the Fed’s disinflation process is progressing well, the renewed impact of tariffs could reignite inflation, potentially forcing the Fed to delay early rate action. As of now, markets are still pricing in the first rate cut in June, with a total of 89 basis points expected to be cut throughout 2025.

 

Looking ahead, the USD calendar is relatively light, with no major market-moving events scheduled. As such, market focus will remain on trade developments. In the absence of any positive breakthroughs—particularly with China—the USD is expected to remain under pressure.

GBP: Bullish, but require strong catalyst

Over the past week, the GBP has not outperformed as much as expected following the U.S. tariff announcement. While it is often considered a relative safe haven among pro-cyclical currencies—due to the UK’s limited direct exposure to U.S. tariffs—the pound has yet to see meaningful upside. For now, risk sentiment remains fragile, and the GBP is expected to remain under pressure relative to traditional safe havens (such as JPY and CHF), while potentially outperforming more volatile, high-beta currencies once market sentiment begins to stabilize.

 

Looking ahead, the GBP calendar is relatively active, with the spotlight on upcoming UK employment data and March CPI figures. At present, markets are pricing in a gradual, quarter-point rate cut by the Bank of England, in line with the BoE’s “gradual” and “careful” stance on monetary policy. However, any signs of sticky inflation or second-round effects—particularly in wage growth or services inflation—could shift the narrative. Should incoming data suggest renewed inflationary pressures, the BoE may opt to delay its rate cut cycle, or even maintain the current policy stance for longer. This would support the pound in the medium term. In essence, the GBP is currently awaiting a clear catalyst to reassert its safe haven role among pro-cyclical currencies during this period of macroeconomic uncertainty.

AUD: Bearish

The Antipodean currencies, particularly the AUD, have emerged as major 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 perspective, Australia faces relatively limited impact given its already low trade exposure to the U.S., and despite being subject to a 10% tariff (now under a 90-day pause). However, the AUD found little relief from this pause, as the greater risk lies in the spillover effects from U.S.-China trade tensions. The AUD continues to trade as a liquid proxy for the Chinese yuan (CNH), making it vulnerable to developments on that front. Notably, China has now been subjected to a cumulative 145% in U.S. tariffs, and in response, has raised its own tariffs on U.S. goods from 84% to 125%, effective April 12. China has also signaled it will resolutely pursue countermeasures should the U.S. escalate further. As such, the intensifying trade conflict between the U.S. and China remains a key downside risk for the AUD in the near term.

 

Looking ahead, market focus will shift to Australia’s upcoming employment data and, more critically, ongoing trade developments. While the February labor report surprised to the downside, RBA Governor Bullock downplayed the weakness during the April meeting, reaffirming that the labor market remains tight with no material signs of deterioration. As a result, employment data is unlikely to significantly influence market pricing or the RBA’s near-term stance. Instead, the central bank’s focus remains firmly on inflation risks—particularly the potential second-round effects stemming from U.S. tariffs. In all, as long as trade tensions between the U.S. and China show no signs of de-escalation, the AUD is expected to stay under pressure, offering a “sell-on-rally” opportunity.

NZD: Bearish

The Antipodean currencies, particularly the NZD, have been among the major underperformers since the announcement of new U.S. tariffs—primarily due to their high-beta characteristics and sensitivity to shifts in global risk sentiment. From a direct trade perspective, New Zealand’s exposure to the U.S. remains limited, and although it is subject to a 10% tariff (currently under a 90-day pause), the NZD has derived little benefit from this temporary reprieve. The greater concern lies in the broader implications of escalating U.S.-China trade tensions, given New Zealand’s close trade ties with China. China is now facing a cumulative 145% in U.S. tariffs and has retaliated by increasing tariffs on U.S. goods from 84% to 125%, effective April 12. Moreover, China has warned of further countermeasures if the U.S. continues to escalate. These developments pose a significant downside risk to the NZD in the near term.

 

Meanwhile, the RBNZ delivered another 25bp rate cut last week, as widely expected. The policy statement remained dovish, emphasizing that if economic conditions evolve in line with projections or if the trade conflict deteriorates further, the Committee retains scope to lower the Official Cash Rate (OCR) further throughout 2025. As a reminder, former RBNZ Governor Orr previously suggested during the February meeting that an additional 25bp cut in May would be appropriate. Markets are now nearly fully pricing in another cut at the upcoming May meeting, adding further bearish pressure to the NZD.

 

Looking ahead, the NZD calendar is relatively quiet, with no major market-moving events scheduled. As such, market attention will stay focused on ongoing trade developments. In short, as long as trade tensions between the U.S. and China remain unresolved, the NZD is expected to stay under pressure, continuing to offer a “sell-on-rally” opportunity.

CAD: Bearish

The CAD has underperformed modestly since the Trump tariff announcement and remains vulnerable amid rising global trade uncertainty. While Canada was not directly targeted by the April 2nd tariff list, and a 90-day pause on its existing 10% tariff was granted, the overall trade hit remains meaningful. When accounting for non-USMCA tariffs, autos, and steel/aluminum levies, Canada still faces an effective trade-weighted tariff rate of around 12%. This represents a significant drag for an economy so closely tied to global and especially U.S. trade flows. As such, any rise in the probability of a U.S. recession could amplify CAD downside, given the Canadian economy’s tight linkage with the U.S. cycle. Domestically, recent data signals growing headwinds. The latest Canadian employment report showed a sharp decline in jobs, particularly within wholesale and retail trade—industries typically sensitive to external demand and trade disruptions. This suggests that even the anticipation of trade frictions may already be feeding into weaker labor market dynamics.

 

Looking ahead, market attention will turn to the April 16th BoC meeting. While the Bank had flagged upside risks to inflation last month, supported by the Q1 Business Outlook Survey showing rising inflation expectations, the recent deterioration in growth could shift the balance of risks. If the BoC continues to emphasize inflation and opts to stay on hold, markets may still lean toward deeper rate cuts in subsequent meetings as growth momentum falters. Conversely, if the BoC pivots back to focus on downside growth risks, it would be interpreted as a dovish turn. Either way, the asymmetry in risks points to continued softness in CAD. In short, as long as trade tensions remain unresolved and U.S. growth uncertainty persists, the CAD outlook stays bearish. Even with a temporary 90-day tariff pause, structural vulnerabilities, softening domestic data, and the BoC’s policy ambiguity all point toward fading rallies in the loonie over the medium term.

 

JPY: Bullish

 

As a traditional safe haven currency, the JPY has remained one of the key winners in the G10 FX space following the announcement of new U.S. tariffs. Although President Trump’s decision to implement a 90-day pause on reciprocal tariffs briefly eased investor concerns and temporarily lifted USD/JPY, the rebound was short-lived. Global trade uncertainty remains elevated due to the unpredictable nature of Trump’s protectionist policies. Beyond trade headlines, the yen remains fundamentally supported over the medium term by three key factors: rising expectations for BoJ rate hikes, growing risk of U.S. stagflation, and political resistance—both domestically and from the U.S.—toward further yen depreciation.

 

First, market expectations for BoJ tightening remain modest, with only 13bps of hikes priced in for 2025. However, BoJ Governor Ueda has reiterated a hawkish bias, suggesting that if financial conditions stabilize, further rate hikes could come back into focus. This opens the door for repricing of policy expectations, which would be supportive for the JPY.

 

Second, although the 90-day tariff pause may provide temporary relief, underlying U.S. economic weakness raises the risk of stagflation. The still-effective universal 10% tariffs are likely to weigh on activity while pushing up import prices, creating a stagflationary backdrop. This scenario complicates the Fed’s policy response—limiting its ability to cut rates aggressively—and keeps broader market sentiment fragile. Unless there is a significant improvement in investor confidence, safe haven demand for the yen is expected to persist.

 

Third, political pushback against excessive yen weakness—both from Japan and the U.S.—continues to act as a buffer. U.S. Treasury Secretary Bessent recently stated that “it is natural for the yen to appreciate,” highlighting the firm opposition within the U.S. administration toward further JPY depreciation.

 

Looking ahead, the JPY calendar is relatively light, with the upcoming Japan CPI being the primary data point of interest. Should inflation figures remain firm, this would further reinforce the BoJ’s hawkish tilt and increase the likelihood of additional tightening later in 2025. Meanwhile, in the absence of any major positive breakthroughs in U.S. trade policy, the yen is expected to remain well-supported amid ongoing geopolitical and trade-related uncertainties.

CHF: Bullish

The CHF has emerged as the biggest winner among G10 currencies since the announcement of Trump’s tariffs, supported by its traditional safe haven status. The escalating trade tensions between the U.S. and China have further strengthened demand for the franc. While the persistent CHF strength could pose a challenge for the Swiss National Bank (SNB), the market currently perceives only a limited risk of outright FX intervention. This is primarily due to the political and diplomatic risks associated with such action—sustained and one-sided intervention could trigger scrutiny from the U.S. Treasury, potentially resulting in Switzerland being labeled a currency manipulator, followed by the imposition of retaliatory tariffs.

 

On Monday, the SNB will publish sight deposit data for March. An increase in sight deposits typically signals that the SNB is actively intervening to curb franc strength. However, this month’s data may offer limited insight into the Bank's current stance, as CHF appreciation in March was relatively modest (around 2% vs USD), and EUR/CHF even rallied on the back of Germany’s announced fiscal stimulus. Nevertheless, in a market that continues to favor defensive assets over the USD, even stable sight deposit figures could be interpreted as a green light to remain bullish on CHF.

 

Looking ahead, the CHF calendar is relatively light, with no major data releases or policy events. As such, the franc will likely continue to trade off broader risk sentiment. In the current environment, sustained risk-off dynamics should keep the CHF well-supported. However, it is worth noting that despite its recent strength, CHF remains the most attractive funding currency among G10 FX. Therefore, once trade tensions begin to ease—particularly if there are meaningful positive developments from the Trump administration—the franc could gradually revert to its traditional funding role.

 

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