Written by the Market Insights Team
Markets whipsaw on conflicting headlines
George Vessey – Lead FX & Macro Strategist
Financial markets experienced more turbulence on what was a manic Monday, with equities swinging between sharp gains and losses on tariff related headlines. But safe haven bonds are being dumped too, with the 10-year Treasury yield jumping sharply back above 4% in what was the biggest single daily gain in almost three years. The US dollar remains under pressure despite its haven status, whilst the Swiss franc is emerging as the safest bet in the FX space.
Rumours of a 90-day tariff pause sparked a global risk rally before the White House declared “fake news”. Equity declines then extended after President Trump threatened to impose additional tariffs of 50% on China unless Beijing withdraws its 34% retaliatory duty on US goods. These measures, combined with existing tariffs, highlight the administration’s determination to impose duties on virtually all trading partners.
The Nasdaq Composite was swinging from a 4.5% gain to a loss of around 5% at Monday’s intraday extremes, putting it on pace for the most dramatic intraday spread since November 2008. In the FX markets, safe haven demand soared, mostly benefiting the Swiss franc, surging 3.5% since last week against the USD and not far from levels that have proved to be unsustainable in the past.
Price action is already reminiscent of significant dislocations like Covid and the global financial crisis. Volatility is rife, and it may remain this way until we get more clarity on the ultimate level and duration of tariffs. The elevated volatility, reflected in the VIX reaching crisis-level readings, underscores the precarious state of financial markets.
Europe to vote on retaliation measures
George Vessey – Lead FX & Macro Strategist
In Europe, the Stoxx 50 plunged more than 7% before closing 5.4% lower, its lowest since August. The Stoxx 600 fell as much as 6% before narrowing losses to end 4.5% down, its lowest since January 2024. The euro didn’t escape the FX volatility, but it proved resilient – holding above the $1.09 handle versus the US dollar whilst rising to a 6-month high against the pound.
It’s been an abrupt reversal for European stocks. After riding on optimism in past weeks over talks of German fiscal reforms and European investment in defence, Trump’s tariffs have now triggered a market rout. The situation remains extremely fluid though. At one point, headlines revealed the EU was looking at reducing its retaliation against US steel tariffs after member states lobbied to protect their industries. But now, it appears the bloc is planning 25% tariffs on a range of US products – from yachts to tobacco. The total amount of US exports affected would be €22.1 billion based on the EU’s 2024 imports, according to public Eurostat figures. EU governments will vote on the plan on Wednesday.
In terms of where that leaves the euro – it’s still a tug of war between tariff pain and the fiscal response from Europe. Although a global trade war would typically weigh on the euro, the vulnerabilities in the US economy and the fiscal response from Europe are currently the driving force for EUR/USD, keeping it supported more than other major currencies outside the typical safe havens.
Tariff haven no more
George Vessey – Lead FX & Macro Strategist
Sterling’s resilience to tariff risks has come to an end. GBP/USD sunk over 1% on Monday to touch its lowest level in five weeks – extending its drop from $1.32 touched just last Thursday. GBP/EUR also dropped around 1%, failing to hold above its 200-week moving average at €1.17, and breaking below a long-term upward sloping trendline that’s been in place since late 2022.
Although the UK has been slapped with the lowest tariff rate of 10%, it will still suffer from a global trade war and global economic slowdown. Ultimately the pound is a pro-cyclical currency that usually appreciates in good times and depreciates in bad times. With global investor sentiment so weak and volatility so elevated, it was only a matter of time before investor ditched the UK currency in favour of safer alternatives with current account surpluses.
The threat of the economic slowdown spilling into the UK is why markets also anticipate more Bank of England (BoE) rate cuts. Markets are now pricing in around 88 basis points of reductions to the BoE’s benchmark rate by December, up from about 43 basis points at the end of March. The likelihood of a 25-basis-point rate cut at the BoE’s next policy meeting in May has also surged to around 90%.
In a context where safe-haven demand continues to dictate sentiment amid the chaos of US tariffs FX traders are turning more bearish on the pound, especially since both GBP/USD and GBP/EUR have broken below their 200-day moving averages. Sterling will require a rebound in global risk appetite in order to claw back recent losses.
Euro resilient against most peers
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 7-11
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.
