Unless there is a significant reverse on the Trump’s trade policy, otherwise the ‘Sell America’ narrative will remain the market theme.

EUR: Bullish

Over the past week, in the absence of significant domestic macroeconomic drivers, the EUR has continued to be influenced primarily by external factors. The recent strength of the euro is largely attributed to its position as the second most liquid currency globally and its role as a preferred alternative to the U.S. dollar in global FX reserves. Although recent comments from Trump and Besset temporarily eased some of the trade-related uncertainty—prompting mild profit-taking in the EUR—these relief-driven moves are expected to be short-lived, as market uncertainty remains largely unchanged. As such, as long as concerns over U.S. trade policy persist and sentiment toward the U.S. economy stays cautious, the EUR is likely to maintain its position as the dominant currency in the G10 FX space.

 

Looking ahead, the eurozone calendar is relatively light, with key data releases including the preliminary April CPI and Q1 GDP. However, the broader FX market narrative is expected to remain focused on U.S. trade policy developments. In this context, unless there is a material improvement in the outlook for U.S.-China trade relations, the baseline view for the EUR remains constructive—supported by its global liquidity status and continued appeal as a reserve currency alternative to the USD.

USD: Bearish

Over the past week, the ‘Sell America’ narrative has continued to weigh on the USD, driven by persistent uncertainty surrounding potential economic growth and rising recession fears linked to trade policy. Regarding trade developments, the USD briefly rebounded following former President Trump’s remarks that he has no intention of dismissing Fed Chair Powell, as well as some backtracking on tariffs with China. Additional support came from comments by Bessent, who expressed expectations that tensions would de-escalate and negotiations would resume. Trump also signaled a softer stance by stating he would be “very nice” with China and that tariffs could be reduced “very substantially.” That said, the USD rebound on the back of these comments proved short-lived, as underlying uncertainty in the market remains unchanged. Meanwhile, Trump's latest statements have escalated global uncertainty: he threatened Canada with higher tariffs up to 25%, warned that if China does not engage in talks, new tariffs will be set within the next 2–3 weeks, and informed Japan that it would not receive special tariff treatment. As a result, despite some constructive rhetoric from Trump and Besset, the balance of risks for the USD remains tilted to the downside in the near term. That said, a stabilization in the dollar is more likely than another round of structural weakening.

 

With limited domestic macroeconomic data released last week, market attention shifted toward recent Fed speeches. Fed Governor Waller noted that he would support rate cuts if there is significant deterioration in the labor market. Meanwhile, Fed’s Hammack ruled out a rate cut in May but signaled that the Fed could ease as early as June, should there be greater clarity on the economic outlook. Despite some divergence in tone, both speakers emphasized a cautious and data-dependent stance, reinforcing the Fed’s broader wait-and-see approach.

 

Looking ahead, the USD faces a busy economic calendar, with several key macroeconomic data releases in focus. Among them, the highlights will be Core PCE—the Fed’s preferred inflation gauge—and Non-Farm Payrolls (NFP). Starting with Core PCE, both the latest CPI and PPI data point to a subdued reading. According to Pantheon Economics, the data suggest a 0.13% m/m increase in the Core PCE deflator for March, bringing the y/y rate down to 2.6% from 2.8%. While this may indicate that the Fed’s disinflation process is on track, the renewed impact of tariffs could reignite inflation pressures, potentially forcing the Fed to delay any early rate cuts. This aligns with recent commentary from Powell and other Fed officials, who maintain a cautious, wait-and-see approach. As for the NFP, since it is no longer a primary driver of inflation expectations, the data is expected to show continued strength and resilience in the labor market. However, any emerging signs of weakness could raise concerns about the health of the US economy and increase expectations for an earlier Fed rate cut—potentially triggering further ‘Sell America’ sentiment in the market. Overall, the baseline outlook for the USD remains bearish, as uncertainty surrounding trade policy continues to dominate near-term market direction.

GBP: Bullish, but require strong catalyst

The GBP has underperformed relative to expectations in the wake of the U.S. tariff announcement. Although often regarded as a relative safe haven among pro-cyclical currencies—primarily due to the UK’s limited direct exposure to U.S. tariffs—the pound has yet to post meaningful gains, particularly against currencies with greater U.S. tariff exposure. Beyond trade policy, domestic developments have offered little support for sustained GBP strength amid the current uncertain environment.

 

Notably, UK PMI figures disappointed, with the services PMI unexpectedly slipping into contractionary territory, pulling the composite reading down as well. The accompanying report highlighted that "April’s fall in output was the largest recorded for nearly two and a half years," suggesting GDP is declining at a quarterly rate of 0.3%. Meanwhile, hawkish commentary from the BoE’s Greene failed to elicit a significant market reaction, as rate expectations continue to lean dovish. Markets are currently pricing in a 25bps cut next month and a total of 86bps of easing by year-end. Additionally, while UK retail sales data surprised to the upside, the broader context remains weak—retail volumes are still 0.3% below pre-pandemic levels (February 2020), limiting any upside potential for GBP.

 

Looking ahead, the UK economic calendar is relatively light, with no major data releases expected. As such, the pound will likely remain driven by broader global risk sentiment. Given the UK's limited exposure to U.S. tariffs, any signs of positive trade developments—particularly between the U.S. and UK—could act as a potential catalyst for GBP in the near term. In summary, the baseline outlook for GBP remains cautiously constructive. While macro uncertainty persists, the pound is relatively well supported and may reassert its role as a defensive pro-cyclical currency once a clearer catalyst emerges.

AUD: Bearish

The Antipodean currencies—particularly the AUD—have been notable underperformers since the announcement of new U.S. tariffs, largely due to their high-beta characteristics and sensitivity to global risk sentiment. From a direct trade perspective, Australia faces limited exposure to the U.S., and although currently subject to a 10% tariff, it is under a 90-day pause. However, this pause has provided little relief to the AUD, as the broader concern stems from spillover effects of escalating U.S.-China trade tensions. The AUD continues to trade as a liquid proxy for the Chinese yuan (CNH), rendering it especially vulnerable to developments in U.S.-China relations. Despite this vulnerability, the AUD found temporary relief following comments from Trump suggesting a partial backtrack on tariffs with China. Further support to global risk sentiment came from Bessent, who expressed expectations for de-escalation and renewed negotiations, alongside Trump stating he would be “very nice” with China and that tariffs could be lowered “very substantially.” However, these positive developments are expected to be short-lived, as the prevailing uncertainty remains unchanged. In summary, ongoing trade conflict continues to represent a key downside risk for the AUD in the near term.

 

Looking ahead, market attention will turn to Australia’s Q1 CPI release, which could serve as a critical signal for whether the RBA will proceed with a 25bps rate cut in May. Markets have already fully priced in a May cut, despite the RBA’s hawkish messaging, where it reiterated the need for policy to remain restrictive and data-dependent. Should the Q1 CPI confirm further disinflation, it would strengthen the case for a May cut and may prompt the RBA to drop the "restrictive" policy stance—potentially triggering further AUD weakness. Notably, Westpac forecasts a 25bps rate cut in May, even if Q1 inflation proves somewhat sticky, underscoring the market’s conviction. Overall, the baseline outlook for the AUD remains bearish, driven by continued U.S.-China trade uncertainty and the risk of a dovish pivot by the RBA if inflation data show favorable developments.

NZD: Bearish

The Antipodean currencies—particularly the NZD—have been notable underperformers since the announcement of new U.S. tariffs, largely due to their high-beta characteristics and sensitivity to global risk sentiment. From a direct trade perspective, New Zealand faces limited exposure to the U.S., and although currently subject to a 10% tariff, it is 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. Despite this vulnerability, the NZD found temporary relief following comments from Trump suggesting a partial backtrack on tariffs with China. Further support to global risk sentiment came from Bessent, who expressed expectations for de-escalation and renewed negotiations, alongside Trump stating he would be “very nice” with China and that tariffs could be lowered “very substantially.” However, these positive developments are expected to be short-lived, as the prevailing uncertainty remains unchanged. In summary, ongoing trade conflict continues to represent a key downside risk for the NZD in the near term.

 

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 new U.S. tariffs, despite Canada not being directly targeted—thanks largely to protections provided under the USMCA agreement. However, when accounting for non-USMCA-related tariffs—including those on autos, steel, and aluminum—Canada still faces an effective trade-weighted tariff rate of approximately 12%. This poses a significant headwind for an economy deeply intertwined with global trade and highly sensitive to U.S. economic conditions. Notably, Trump’s recent comments have further escalated trade uncertainty, with threats to raise tariffs on Canada by as much as 25%. As such, any rise in trade-related uncertainty or an increased risk of a U.S. recession could add further downside pressure to the CAD, given Canada’s tight alignment with the U.S. business cycle.

 

As a reminder, 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%. As a result, if either scenario materializes, the CAD is likely to face further medium-term weakness.

 

Looking ahead, the Canadian data calendar is relatively light, with GDP being the main domestic release. However, as this reflects backward-looking data, market participants are expected to look past it and instead focus on ongoing trade policy developments. In parallel, Canada’s federal election on 28 April will also be a key event for CAD. The race has centered around how to respond to Trump’s tariffs. Current polls and betting markets suggest that the Liberals, led by PM Mark Carney, are likely to secure an absolute majority. This outcome appears priced in and may have limited immediate impact on the CAD. However, a surprise victory by the Conservatives—who are pledging larger tax cuts—could spark a short-term CAD rally. In all, the baseline outlook of the CAD remain neutral, as market awaiting another obvious catalsyt to determine the next move, despite the overall direction look ‘bearsih’, unless there is another positive surprise from trade policy or Canada federal elections.

JPY: Neutral, but leaning to bullish

Over the past week, the JPY weakened, largely driven by easing concerns that FX levels would become a major sticking point in the ongoing US-Japan trade negotiations. While President Trump had previously criticized Japan for a "weak yen policy," comments from Japan’s Finance Minister Kato and US Treasury Secretary Bessent have helped dampen these fears. Kato clearly stated there was "absolutely no discussion" of FX targets during the talks, and Bessent echoed that by saying there will be "no currency target," with negotiations mainly focusing on tariffs, non-tariff barriers, and government subsidies. While Bessent did remind that Japan should respect G7 commitments (letting markets determine exchange rates), overall, the tone reduced risks of US pressure on JPY appreciation, which in turn contributed to the yen’s underperformance last week.

 

On the domestic side, Tokyo inflation surprised strongly to the upside. April Tokyo CPI rose to 3.5% y/y from 2.9% in March, driven by higher services prices, while core inflation (excluding fresh food) surged to 3.4% y/y from 2.4%. Monthly inflation momentum also accelerated, with seasonally adjusted prices rising 0.5% m/m. Importantly, services inflation continued to pick up, suggesting underlying inflation pressures are becoming more broad-based. Although this strengthens the case for the BoJ’s gradual rate normalization, the BoJ is widely expected to keep policy on hold at this week’s meeting. The central bank will likely cite high external uncertainties, particularly around the evolving US-Japan trade talks and global growth risks, as reasons for patience.

 

Looking ahead, the BoJ’s forward guidance is expected to remain broadly unchanged, stating that rate hikes will continue if the economy evolves as expected. Markets will pay close attention to the BoJ’s updated GDP and inflation forecasts, where GDP growth is likely to be significantly downgraded, but inflation forecasts will be only modestly adjusted upward. Additionally, BoJ Governor Ueda’s comments during the post-meeting press conference will be closely watched. Given the heightened sensitivity around currency issues during US-Japan negotiations, Ueda is expected to avoid any remarks that could weaken the yen.

 

In all, the baseline outlook of the JPY remains bullish medium-term, despite the recent soft patch. Strong domestic fundamentals (rising inflation, higher wages), BoJ’s gradual policy normalization, and global macro trends (such as slowing global growth and expected Fed rate cuts) all continue to support the yen’s strength. Near-term uncertainties around trade policy may limit gains temporarily, but the broader environment remains favorable for JPY appreciation against high-beta and yield-sensitive currencies.

CHF: Neutral

Over the past week, the safe haven CHF did not perform as strongly as in previous weeks following the U.S. tariff announcements. This underperformance may be attributed to recent positive comments from Trump and Bessent regarding trade policy, as well as concerns over potential U.S. tariffs on Swiss pharmaceutical exports. Additionally, the SNB is likely to show limited tolerance for further CHF appreciation, which may also be weighing on the currency. In addition, the latest comment from SNB President Schlegel create a greenlight for more CHF weakness barring risk-off flows. He cited an economic slowdown in Switzerland cannot be ruled out given the uncertainty of US trade policy, and reiterated that the main instrument is interest rate, open to FX intervention if necessary.

 

Looking ahead, the CHF calendar remains quiet, with no significant domestic data or policy events scheduled. As such, the franc is expected to continue trading primarily on broader global risk sentiment. In the current environment of elevated uncertainty and persistent risk aversion, the CHF should remain well-supported. That said, the franc continues to hold its position as the most attractive funding currency within the G10 space. Should global risk sentiment improve meaningfully—particularly if U.S. trade policy adopts a more market-friendly tone—the CHF could gradually revert to its traditional role as a funding currency in carry trades. Overall, the baseline outlook for the CHF remains neutral, with its next directional move likely to be determined by shifts in global risk sentiment, either positive or negative.

 

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