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The DXY Index rebounded by 1% to 99.3 after falling below the 100 mark for four consecutive days. The S&P 500 Index rallied 2.5% to 5288 overnight, reversing the 2.4% decline on Monday. The US Treasury 10Y yield eased slightly by one bps to 4.40%.
Market focus shifted from US President Donald Trump’s criticism of Fed Chair Jerome Powell toward renewed hopes of de-escalating US-China trade tensions. US Treasury Secretary Scott Bessent described the ongoing tariff standoff – likening it to a trade embargo – as unsustainable. He emphasized that the US was not seeking to decouple from China and expressed optimism that tensions could ease in the coming months. Trump also raised expectations for reducing the current 145% tariff rate on Chinese imports, contingent on progress toward a trade agreement. Trump added later that he had no intention of firing Powell. Bessent also sought to counter market concerns about a lack of direction in Trump’s agenda by sequencing key initiatives – tariffs were announced on Liberation Day, with a plan to finalize the extension of Trump’s 2017 tax cuts by Independence Day, followed by deregulation efforts.
Despite the IMF issuing the steepest downgrade for US growth among the advanced economies for 2025, the US is still expected to remain the fastest-growing developed nation. Although the IMF lowered US growth to 1.8%, down from 2.7% in January, it remains slightly above the Fed’s March projection of 1.7% and higher than Canada (1.4%), the UK (1.1%), Euro Area (0.8%), and Japan (0.6%). The IMF downgraded this year’s global growth to 2.8% from 3.3%, citing rising worries over the economic fallout from escalating tariffs and trade tensions. Here, markets are paying close attention to the high-level trade talks between the US, Japan, and South Korea. While all sides are eager to demonstrate progress toward a deal, it remains too early to determine whether substantive progress can be achieved to reduce tariffs before the 90-day pause on reciprocal tariffs expires in early July.
Hence, one cannot be too confident that the Trump administration’s more measured tone reflects genuine recalibration. Instead, they were more likely calibrated for the G20 finance ministers and central bank governors’ meetings in Washington on April 23-24. Given Trump’s fixation on maintaining leverage and “holding all the cards” in negotiations, there is little to suggest a lasting shift from his unpredictable and often erratic policy approach. Against this backdrop, G20 nations face mounting challenges navigating the coming global economic and trade activity slowdown. While this week’s meetings offer a platform for dialogue, the path to meaningful cooperation will likely prove elusive. Given the competing forces at play, the recent USD sell-off may transition into a more consolidative phase rather than a sustained reversal. The tug-of-war between Trump’s unpredictable policymaking and the reality of slowing growth amid fragile risk appetite may limit clear directional conviction in the near term.
Quote of the Day
“False hopes are more dangerous than fears.”
J.R.R. Tolkien
April 23 in history
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