Written by the Market Insights Team
From chaos to calm
George Vessey – Lead FX & Macro Strategist
It’s been yet another topsy turvy week in financial markets, but Thursday marked a third consecutive day of risk-on trading, fuelled by dovish remarks from Fed officials and a de-escalation in Trump’s trade war. Cross-asset price movements suggested a more stable and lasting improvement in market sentiment, contrasting with the sharp, short-covering-driven rallies seen earlier in the week.
Cleveland Fed President Beth Hammack got things rolling yesterday, noting the Fed could cut rates as early as June if it has clear evidence of the economy’s direction. And that sentiment was later echoed by Governor Christopher Waller who said he’d support rate cuts if there’s a significant rise in unemployment. And in the last few hours, in a notable development, Bloomberg reported that China is considering suspending its 125% tariff on certain US imports, signalling a potential easing in trade tensions.
The S&P 500 index was able to exit correction territory, ending at least 10% above its recent low set in the wake of Trump’s April 2 “liberation day” tariffs. In the FX space, US dollar demand is picking up, whilst traditional safe havens like the yen, euro, and Swiss franc have weakened, the latter down more than 1% this week.
Recent events also underscore the bond market’s influence on President Trump’s decisions. After sharp increases in long-term yields caused market unease, Trump suspended most tariffs for 90 days. Similarly, following another yield spike after his remarks on Fed Chair Powell, he clarified he had no plans to fire Powell. These reactions suggest that significant yield rises on the long end will likely prompt mitigating actions to stabilize markets.
Euro quelled by risk-on mood
George Vessey – Lead FX & Macro Strategist
Despite the modest relief rally for the dollar in the wake of recent news, the $1.13 mark remains a key short-term support for EUR/USD for now. A decisive break could open the door for a bigger leg lower with the 21-day moving average, at $1.1136, another important level to decipher the short-term trend. But despite the potential for an extended pullback, longer term dynamics appear favourable with options traders betting on lasting euro strength, pointing to a structural shift in market dynamics.
In the macro space, data yesterday showed Germany’s Ifo index improved slightly to 86.9 in April from 86.7 in March, driven by stronger current assessments, though business expectations weakened. Despite the mild positive surprise, US tariffs and geopolitical shifts pose significant risks. Confidence indicators suggest the German economy has bottomed out but will likely face delays in recovery due to tariff impacts and structural challenges. Fiscal stimulus promises long-term growth but lacks immediate implementation plans, while government tensions over spending could limit its effectiveness. Broader uncertainties, including Ukraine negotiations and shifts in US-China trade policies, add to the economic outlook’s complexity.
Meanwhile, traders have added to European Central Bank (ECB) rate-cut wagers following dovish comments from officials. Markets are currently pricing a 50% probability of another two more rate cuts over the next two ECB meetings, which is another factor capping euro upside for now.
Brits bask in sunshine boom
George Vessey – Lead FX & Macro Strategist
Retail sales in the UK rose by 0.4% m/m in March 2025, defying forecasts of a 0.4% decline and follows a revised 0.7% gain in February. Exceptional March sunshine drove retail sales higher for the third consecutive month, achieving the best streak in sales growth since early 2021, when the economy recovered from Covid lockdowns. However, Trump’s tariffs in April have dented consumer confidence to its lowest level since November 2023.
The British pound has largely shrugged off the upbeat retail sales data though given its lagging nature and the huge developments we’ve seen unfold on a global scale this month. Still, GBP/EUR finds itself atop the €1.17 handle and further improvements in risk sentiment should asymmetrically help the pound relative to the euro, which dropped to a 17-month low earlier this month. But uncertainty remains elevated and a downside bias intact as long as GBP/EUR stays below its 21-day moving average at €1.1743.
As for GBP/USD, the pair has dipped under $1.33 again this morning, marginally lower on the week, but still around 3% up on the month so far. Rate differentials suggest the pound is overvalued by over 1% but options traders are still bullish GBP versus USD over the next three months. On a more cautious note, the last time the pair marched above $1.34 back in September last year, a 9% drop over four months unfolded.
Euro erases weekly gains
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 21-25
All times are in BST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
