EUROPEAN FX UPDATE: Dollar dealt a hammer blow by heavy-handed Trump approach

DXY, CNH: DXY -0.9%; 102.23; USD/CNH +0.3%; 7.3182

• A dire day for the Dollar as global participants react to US President Trump's Liberation Day announcement (Full details and analysis available on Newsquawk), amid concerns over reciprocal tariffs weighing on US growth.


• The announcement, alongside the 25% auto tariffs, included 10% base tariffs whilst "worst offending" countries received country-specific tariffs, with China's total tariffs (including Feb + Mar levies) at 54%. The EU sits with 20% but has vowed a response. The UK fared better with the 10% base rate applied.


• Morgan Stanley no longer expects the Fed to cut rates in June 2025, due to "tariff-induced inflation". Now expect the Fed to remain on hold until March 2026. MS said that if tariffs persist, US economic growth may suffer, with downside risks increasing. Effective tariffs could reach 22% versus 3% at the year's start, raising inflation risks and keeping the Fed from cutting rates in June. That said, it notes that legal challenges under IEEPA remain uncertain. MS recommends positioning for lower Treasury yields and a firmer JPY.


• Analysts at ING "think that some medium-term factors are in place, that Washington does want a weaker dollar, and that some major investor communities, such as FX reserve managers, will be looking to reduce the dollar share in their FX portfolio."


• Focus today will likely be on US Commerce Secretary Lutnick who is due to make the media rounds on CNBC (at 13:00 BST) and Bloomberg TV (at 13:30 BST); stateside data include weekly jobless claims, ISM Services index, although they will likely be overshadowed by the tariff theme.


• DXY hit a new low for the year at 102.12 (vs intraday high 103.38) - with the 4th October 2024 low (101.81) the next level to the downside.


• The Chinese Yuan was hit amid the hefty cumulative levy but has pared back some of that weakness amid the ongoing USD weakness and better-than-expected Chinese Caixin Services & Composite PMI data overnight. USD/CNH currently resides around the middle of a 7.2928-7.3481 range.

EUR: +1.4%; 1.1011

• Benefitting from the Dollar weakness as opposed to EUR strength in the aftermath of the Trump tariffs.


• Traders brace for retaliation from the bloc - European Commission President Von der Leyen said the EU is preparing for further countermeasures to protect its interests and businesses if negotiations fail. EU retaliation may take about a month and a half to implement at the earliest.


• Risk of a trade war via tit-for-tat escalation remains. Analysts suggest keeping an eye on sharp US equity and yield selloffs to support the EUR/USD pair.


• Revisions higher to Services and Composite PMIs were overlooked.


• EUR/USD sits just above 1.10 in a 1.0806-1.1020 range; ING suggests "Major medium-term resistance sits in the 1.11/12 area. It's hard to call a major break of that unless US activity craters. For the time being, however, expect EUR/USD to trade off the US equity story, where memories will be stirred of protectionism causing major sell-offs."

GBP: +1.2%; 1.3164

• Again a beneficiary of the softer Dollar alongside the relatively better tariffs imposed on the UK vs peers.


• The UK Business Secretary said their approach to Trump's tariff announcement is to remain 'calm and committed' to doing economic deals with the US, while they have a range of tools at their disposal and will not hesitate to act.


• UK Business Minister Reynolds said the government will not rethink its fiscal rules because of the US tariffs


• Revisions lower to Services and Composite PMIs were overlooked.


• High-beta properties restrict gains vs some of the more defensive peers.


• GBP/USD hit a new YTD high at 1.3164 (vs low 1.2968), with the next upside level being the 4th October 2024 peak (1.3174) and then the 3rd October 2024 high (1.3269).

JPY, CHF: USD/JPY -1.7%; 146.69, USD/CHF -1.8%; 0.8651

• Haven FX sit as the top performer amid the flight to quality from the sizeable risk aversion sparked by US tariffs.


• USD/JPY slipped from a USD 149.24 peak to a current low at 146.26 as it eyes the 4th October 2024 trough (145.91).


• USD/CHF slumped under its 200 DMA (0.8808) as it fell from a 0.8833 intraday peak to a 0.8649 current and YTD low - next downside sits at the 6th November trough (0.8619).

Antipodeans: AUD/USD +0.6%; 0.6334, NZD/USD +0.8%; 0.5792

• Gaining on the back of the USD weakness but to lesser extents given their high-beta properties, the broader risk aversion, and potential demand implications from China given the US tariffs.


• Antipodeans traded choppily overnight with early headwinds from the tariff chaos across markets but then rebounded off lows with the recovery helped by some initial resilience in China following better-than-expected Chinese Caixin Services PMI data.


• Australia and New Zealand received the 10% baseline tariff rate from the US.


• AUD/USD rose back above its 50 DMA (0.6296) to trade in a 0.6225-0.6340 range.


• NZD/USD topped yesterday's peak (0.5779) to sit at a current 0.5681-0.5803.

03 Apr 2025 - 10:20- ForexEU Research- Source: Newsquawk