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The DXY Index recovered a second day by 0.2% to 103.26. Within the DXY basket, the GBP depreciated most by 1.3%, followed by the JPY (-0.6%), EUR (-0.4%), and CAD (-0.2%). The USD’s downside has become limited because the factors – plunging equities and bond yields – that drove its weakness started to spill over globally, with the contagion effect killing the relative trade. Although the CHF bucked the overnight trend with a 0.2% gain, USD/CHF rebounded at every attempt in the past two sessions to break the pivotal support level of 0.85. When the Swiss 2Y bond yield was briefly negative, investors recalled the Swiss National Bank’s readiness to return to negative rates, if needed, and interventions to tackle the CHF’s haven status.
Additional support for the greenback came from the US Treasury 10Y yield, which rose for the first time in seven sessions by 18.9 bps to 4.184%. The Fed is pushing back against the market’s “recession” bet for 4-5 rate cuts this year. Fed Governor Adriana Kugler believed Trump’s tariffs had more pressing implications for inflation than economic growth, emphasizing the need to keep long-term inflation expectations anchored. Hence, markets will be wary of upside surprises in Thursday’s inflation report. Consensus expects CPI inflation to slow to 2.5% YoY (0.1% MoM) in March from 2.8% YoY (0.2% MoM) in February.
The S&P 500 Index slipped 0.3% on Monday, marking a notable slowdown in selling pressure following the sharp 10.5% decline over Thursday-Friday. Wall Street initially rallied on unfounded rumours of a tariff pause, duly denied by US President Donald Trump, who also threatened to hit China with an additional 50% import taxes if it did not rescind its retaliatory tariffs by April 8 or today. Following Trump’s reciprocal tariffs on April 3, the USD/CNY fixing has risen towards the top of its four-month range between 7.17 and 7.20, with spot USD/CNY above 7.30 and near the 1.5-year high of 7.3440.
However, attention is shifting toward potential trade negotiations which could provide some respite for currencies today. Trump has agreed to initiate trade talks with Japan following his phone conversation with Japanese Prime Minister Shigeru Ishiba. Trump’s decision to appoint US Treasury Secretary Scott Bessent, not US Trade Representative Jamieson Greer, to lead the talks suggests that the JPY’s valuation might become a significant topic in the discussions, apart from tariffs, non-tariff trade barriers and government subsidies. Trump has previously criticized Japan for a weak JPY to gain trade advantages that led to an “unfair” bilateral trade deficit. Expect the Japanese delegation to deny such allegations while emphasizing Japan’s contribution as the largest investor in the US in the past five years.
International trade negotiations with the Trump administration will be complex and challenging. For example, Vietnam offered to remove all tariffs on US imports and requested a 45-day delay in implementing Trump’s 46% tariff set to take effect on April 9. However, White House Trade Advisor Peter Navarro said the offer did not go far enough to address broader trade concerns about non-tariff barriers such as value-added taxes, trans-shipping Chinese goods through Vietnam, and intellectual property theft. Navarro’s stance indicated that the US was also seeking comprehensive agreements that addressed a wide range of trade practices beyond tariff reductions. Following Trump’s reciprocal tariffs announcements on April 3, USD/VND has risen from 25600 to an all-time high of 25800, where it has remained in the past three sessions.
Quote of the Day
“Let us never negotiate out of fear. But let us never fear to negotiate.”
John F. Kennedy
April 8 in history
Milk was sold in glass bottles for the first time in 1879.
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