Articles

The world is facing a dollar confidence crisis as the
repercussions of “Liberation Day” continue to reverberate, Deutsche Bank says.

The German bank is out with its latest forecasts for the US economy and is increasingly tilting towards a stagflationary scenario.

• 2025 US growth forecast cut to 0.9% (q4/q4), hit by
  tariffs, policy uncertainty and tighter financial
  conditions.
• Labor market still resilient but cracks emerging;
  unemployment to rise to 4.6% this year (4.1% currently)
• Tariffs look set to lead a resurgence in inflation
  pressures this year. Core PCE inflation now
  seen ~3.75% end 2025 (~1pp above prior
  view); risks remain skewed higher.
• Critically, they see US CPI at 3.2% in 2026, endangering rate cuts but forecast a Dec cut and two more in Q1 2026
• China GDP forecast now revised down to 4.5% for 2025, assumes 145% tariffs
• They believe that Xi’s “whatever it takes” fiscal boost will
  be announced before mid-year.
• Eurozone growth downgraded to 0.5% for 2025
• UK GDP seen at +0.8% vs +1.0% prior, expect Q2 contraction on inventory unwind
• Global growth expected at 2.9% in
  2025 (vs 3.2%) and 3.0% in 2026 (vs 3.3%)

Deutsche Bank writes:

This potentially marks the largest shock to the
world’s financial and trading system since the collapse of Bretton Woods in
1971. Although Trump’s 90-day tariff reprieve and subsequent exceptions have
lessened the impact, much damage has already been done thanks to extreme levels
of uncertainty around the credibility and direction of policymaking. The US’s
exorbitant privilege of being able to comfortably fund its twin deficits is
perhaps the largest consequence of recent events, and may ultimately determine
how far the US administration is able to continue this policy.

I worry that we are underestimating supply chain impacts from a China-US decoupling and launching a repeat of covid-style inflation.

In terms of FX, Deutsche Bank sees EUR/USD rising to 1.15 by year end.

This article was written by Adam Button at www.forexlive.com.

• Consumer spending hasn’t slowed yet, but I use the word ‘yet’ because it could with job losses
• Consumer spending consistent with 2% growth
• I worry that trade war could be more concerning if it shifts to services
• We should be highly interested in making sure the US can export services
• Deposits have performed better than we thought
• We’re prepared for times of stress

That’s a positive take from Moynihan on CNBC.

Shares of Bank of America are up 3.6% today following earnings but are still down sharply since November.

This article was written by Adam Button at www.forexlive.com.

The euro has fallen on this headline. The report said:

• After a two-hour meeting, EU trade chief Maros Sefcovic left unclear on US goals.
• US officials signaled most tariffs will stay.

The EU had proposed to the US a regime of reciprocal zero tariffs on autos and industrial goods but that evidently didn’t gain any traction with the US. That’s evidently been rejected, though the US did hint at a way forward with Europe buying more US goods.

There is also a report from earlier suggesting the US was asking for Europe to isolate China in return for lower tariffs.

In any case, the picture isn’t looking good.

The S&P 500 has also turned negative a short time after hitting a session high of +0.8%.

This article was written by Adam Button at www.forexlive.com.

I spoke with BNNBloomberg yesterday about the weakness in the US dollar so far this year and what’s driving it.

I highlighted six main points that I also wrote about yesterday.

1. Tariff troubles sparking supply chain fears beyond simple inflation math, with markets nervous about potential cascading disruptions similar to COVID experience
2. Growth agenda taking backseat to protectionism as tax cut extensions offer limited upside while policy uncertainty creates business headwinds
3. Deficit spending alarming bond markets with 7% GDP gap during full employment; Congress pushing toward potential 10% deficit with promised spending package
4. Institutional foundations of USD dominance (NATO, WTO, rule of law) eroding at pace that threatens reserve currency status; IP rights now potential vulnerability
5. Immigration crackdown threatening key labor forces in inflation-controlling sectors like agriculture and hospitality; no coherent policy emerging despite recent rhetoric
6. Fed independence potentially at risk after court allows agency firings, creating tail risk that could undermine fundamental dollar credibility if Supreme Court upholds

This article was written by Adam Button at www.forexlive.com.

Canadian housing starts fell to an annualized rate of 214.2K in March compared to 242.5K expected. That continues an ongoing slide form 267.3K in November and is like to extend further as the Toronto condo boom goes bust.

The March reading is an 11.6% decline from a year ago with Vancouver starts down 59% and Toronto starts down 65%. In contrast, Montreal starts were up 138% y/y.

I’ve been closely watching Toronto real estate for signs of broader weakness beyond condos. Here is a good chart from Robert Marsiglio showing active homes for sale in the Toronto area excluding condos. Inventory is up 65% y/y and this week the broke above the peak from last year. Seasonally, this should continue to rise through summer.

This article was written by Adam Button at www.forexlive.com.

Yesterday’s slide in 30-year yields helped to calm market nerves but the improvement stalled today after they fell as low as 4.76%. Since then, they have turned higher to touch 4.84%.

I don’t think the market will be too fussed so long as they stay below 4.90% but it’s something to keep an eye on.

This article was written by Adam Button at www.forexlive.com.

• Prior month 2.6%
• CPI m/m +0.3% versus +0.6% expected. Prior month +1.1%
• Core CPI m/m +0.1% versus +0.7% last month
• Core CPI y/y +2.2% versus 2.7% last month
• CPI Median y/y 2.9% versus 3.0% estimate. Last month 2.9%
• CPI Trim 2.8% versus 3.0% expected Last month 2.9%
• CPI Common 2.3% versus 2.5% last month
• Full report

This is an important final data point ahead of Wednesday’s Bank of Canada rate decision. Ahead of the data, the market was pricing in a 60% chance of a hold and a 40% chance of a cut. That’s shifted to 50/50 and USD/CAD has quickly risen about 30 pips.

Macklem signalled that they were going to be more-patient in cutting rates but this data point gives them the greenlight to cut or signal that a cut will be coming in June.

The report highlights the end of the GST tax holiday on February 15 as something that moderated the drop in prices. Prices for travel-related items were a drag with air transport down 12% y/y and travel tours down 4.7%. Cell phone service prices also fell 8.8% y/y amid a price war from Canadian telcos.

Looking ahead, the Canadian carbon tax was removed on April 1 and that’s led to a sharp drop in gasoline prices that’s been compounded by the falling price of oil. That will show up in next month’s data.

This article was written by Adam Button at www.forexlive.com.

• Prior was +0.4% (revised to +0.2%)
• Export prices m/m +0.0% vs +0.0% expected
• Prior was +0.1% (revised to +0.5%)
• Import prices y/y +0.9% vs +2.0% prior
• Export prices y/y +2.4% vs +2.1% prior

Lower prices for fuel imports more than offset higher prices for nonfuel imports in March.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Prior month -20.00
• Empire manufacturing index for April from the New York Fed

This article was written by Greg Michalowski at www.forexlive.com.

• All necessary permits will be expedited to Nvidia.
• As they will to all companies committing to be part of the Golden Age of America.

“Nvidia commits 500 billion dollars to build AI supercomputers, plus, in the United States, exclusively. This is very big and exciting news. All necessary permits will be expedited and quickly delivered to Nvidia, as they will to all companies committing to be part of the Golden Age of America”

Nvidia is getting a bid in pre-market on Trump’s post.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• China’s Premiur Li: Currently, external situations have drastically changed
• What are the interest rates expectations for G8FX?
• Watch out for the first trade deals to lead the market expectations
• Eurozone February industrial production +1.1% vs +0.3% m/m expected
• Germany April ZEW survey current conditions -81.2 vs -86.8 expected
• Federal Reserve Governor Waller’s strategy for dealing with tariffs
• China calls for its airlines to halt any further Boeing jet deliveries amid trade strife
• IEA slashes world oil demand growth forecast amid trade tensions
• China says will stay committed to joining hands rather than throwing punches
• France March final CPI +0.8% vs+0.8% y/y prelim
• BofA FMS: Net 61% expect the Dollar to deprecitate in the next 12 months
• What are the main events for today?
• UK February ILO unemployment rate 4.4% vs 4.4% expected
• Germany March wholesale price index -0.2% vs +0.6% m/m expected
• Nissan set to cut Japanese production of its top-selling US model due to tariffs – report
• G7 finance ministers, central bank governors to hold meeting in the US – report
• NZD/USD eyes fifth straight day of gains, looks to come up for air
• FX option expiries for 15 April 10am New York cut
• The bond market holds calmer for the time being

It’s been another calm European session as the markets consolidate awaiting new information on trade negotiations. There was no notable news release and the peak in escalations seems to be behind us (at least for now).

Markets are now focused on trade deals and US-China developments. That has led to a mostly rangebound price action following two weeks of huge volatility.

On the data front, we got a mixed UK employment report with the unemployment rate holding steady. That didn’t change anything in terms of interest rates expectations. The soft data continues to show a bleak picture with the German ZEW plunging to the lowest level since July 2023.

That’s all expected though and mostly old news with markets showing little to no reaction to economic data at the moment given the focus on tariffs and trade negotiations.

In the American session, we get the Canadian CPI report ahead of tomorrow’s BoC rate decision. Inflation has been
moving higher recently after the aggressive BoC easing, and the tariffs are
expected to keep inflation higher while weighing on growth. The market sees 44
bps of easing by year-end with a 61% probability that the central bank will
hold rates unchanged tomorrow.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Currently, external situations have drastically changed.
• Urges for Chinese foreign trade companies to diversify markets.
• Urges companies to strive to stabilise foreign trade.
• There is relatively big room for China’s property market development.
• Will make greater efforts in stabilising employment, people’s income.
• Will calmly deal with difficulties and challenges from external shocks.
• Will make greater effort to boost consumption, expand domestic demand.

There’s nothing here of interest to markets other than the usual pledge of boosting consumption and domestic demand.

This article was written by Giuseppe Dellamotta at www.forexlive.com.