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Global equity markets are dropping as President Trump proceeds with 25% tariffs on Canada and Mexico and raises tariffs on China to 20%. Safe haven currencies are performing well, with the Chinese yuan surprising by strengthening. The pound is at multi-year highs against the Aussie and Canadian dollars, and the Swedish krona is a strong performer due to Europe’s defense spending plans. The US dollar is weak due to slowing economic activity.
USD: Macro Weakness Overpowers Tariff Risks
Investors are shifting from equities to bonds as U.S. economic growth slows. The latest data, including the ISM PMI report, showed weak manufacturing and rising inflation. The Atlanta Fed's GDP forecast plunged from 2.3% to -2.8%, indicating stagflation risks. The dollar fell 1%, with tariffs priced in and weaker data pushing the euro and pound higher.
EUR: Boosted by Defense Spending
The euro remains resilient despite Trump’s tariffs, supported by expectations of increased Eurozone defense spending. EUR/USD briefly rose above $1.05. Increased defense spending, particularly in Germany, has helped the euro, but market risk aversion limits potential gains. Eurozone inflation fell to 2.4%, supporting the ECB’s view that inflation pressures are temporary.
GBP: Bullish Outlook
The pound rose above $1.26, hitting a 2025 high of $1.27, supported by higher UK interest rates and expectations of less vulnerability to U.S. tariffs. Geopolitical developments and European defense plans also helped the pound.
00:30 AUD 0 RBA MPC Minutes
00:30 AUD - Retail Sales
10.00 EUR - Retail Sales
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