It was another topsy-turvy day in the financial markets, but this time risk appetite kicked in strongly during the New York session thanks to the latest plot twists in the tariffs drama.
Investors seemed so caught up in global trade developments, particularly the shots being fired between the U.S. and China, that the FOMC minutes appeared to be a non-event.
Here’s what you need to know.
Headlines:
- Australia Building Permits for February 2025: -0.3% m/m (-0.3% m/m forecast; 6.3% m/m previous)
- RBNZ cut interest rates from 3.75% to 3.50% as expected and signaled a more dovish outlook on trade concerns
- Additional U.S. tariffs on China took effect, bringing the cumulative tariff rate up to 104%
- Japan Consumer Confidence for March 2025: 34.1 (34.3 forecast; 35.0 previous)
- Japan Machine Tool Orders for March 2025: 11.4% y/y (0.5% y/y forecast; 3.5% y/y previous)
- China retaliated with additional 50% tariffs on U.S. goods, raising the total rate to 84% by April 10
- People’s Bank of China reportedly called major state banks to reduce dollar purchases
- BOJ Governor Ueda reiterated that they will continue to raise rates if economy continues improving in line with projections
- Mostly dovish commentary from ECB officials:
- ECB official Knot warned that disinflation well on track, long-term trade war is a negative supply shock
- ECB official Rehn pointed to downside risks materializing and supporting the case for an April cut
- ECB official Villeroy acknowledged potential shocks from trade war but assured that no recession is in sight
- ECB official Escriva warned that worst case scenarios are materializing but that euro could emerge as a more attractive alternative to the dollar
- Germany’s signed coalition treaty for new government under Chancellor Merz
- U.S. Wholesale Inventories for February 2025: 0.3% m/m (0.3% m/m forecast; 0.8% m/m previous)
- Trump announced a 90-day pause on higher reciprocal tariffs for most trade partners but still raised tariffs Chinese goods to 125% citing “lack of respect” for world markets
- U.S. EIA Crude Oil Stocks Change for April 4, 2025: 2.55M (6.17M previous)
- U.S. sold $39B in benchmark 10-year notes with a lower-than-expected yield of 4.435% and a higher-than-average bid-to-cover ratio (2.67) in a sign of improved U.S. debt demand
- Fed official Barkin warned that tariffs price hikes could kick in by June, watching consumer sector closely
- Fed official Kashkari said that the bar is higher for cutting rates due to tariffs, even if economy and labor market weakens
- Fed official Daly assured that the central bank has time to deliberate their next policy moves
- FOMC meeting minutes highlighted growing inflationary concerns amid trade uncertainty, outlook for real GDP growth weaker than before
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Tariffs developments were still on center stage Wednesday, as markets seemed anxious ahead of additional U.S. tariffs on China taking effect later in the day. Risk assets like crude oil, bitcoin and U.S. equity futures moved sideways in bearish territory while an eleventh hour trade deal seemed unlikely.
Soon enough, the clock struck midnight (in New York) and the shoe dropped, which meant that total U.S. tariffs on China were officially at a whopping 104% (so far). It wasn’t long before China fired back with a 50% increase in tariffs on U.S. imports, bringing the effective rate up from 34% to 84% (so far).
WTI crude oil fell to fresh intraday lows after the announcements while gold continued to advance, climbing back above the key $3,000 barrier as risk-off flows returned. Surprisingly, bitcoin managed to hold its ground around the $78,000 level before surging back above $80,000 later in the day.
As it turned out, Trump pulled out an Uno Reverse card and decided on a 90-day pause in tariffs on most of its trade partners except China, which saw trade levies raised to a cumulative 125%. As a result, U.S. stock markets staged a strong rebound, with the S&P 500 index rose more than 9% to chalk up its best daily performance since 2008 while the Nasdaq caught a massive 11.5% gain.
Gold was able to hold on to its winnings to close 3.24% higher while Treasury yields returned earlier gains but still closed out in positive territory. The FOMC meeting minutes, which highlighted upside inflation risks from tariffs and weaker growth expectations, flew under the radar.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
Apart from the trade developments outlined above, the currency market had plenty of other top-tier catalysts to work with.
To start off, the RBNZ announced its policy decision to cut rates by 0.50% as expected but surprised the markets with a more dovish tilt on account of trade uncertainty. Even so, the dollar remained mostly on the back foot ahead of U.S. tariffs on China taking effect and market anxiety surrounding reciprocal measures.
The dollar proceeded to cruise gradually lower during the European session, before risk appetite took hold during Trump’s announcement of a 90-day pause in tariffs for most of its trade partners. AUD/USD (+3.31%) and NZD/USD (+2.13%) scored significant gains while USD/CHF (+0.96%) and USD/JPY (+0.75%) popped higher while other safe-havens retreated.
Upcoming Potential Catalysts on the Economic Calendar:
- RBA Governor Bullock’s Speech at 10:00 am GMT
- Canada Building Permits at 12:30 pm GMT
- U.S. Initial Jobless Claims at 12:30 pm GMT
- U.S. Consumer Prices Index at 12:30 pm GM
- Fed official Logan’s Speech at 1:30 pm GMT
- SNB official Moser’s Speech at 4:00 pm GMT
- SNB official Tschudin’s Speech at 4:00 pm GMT
- ECB official Donnery’s Speech at 4:00 pm GMT
- Fed official Golsbee’s Speech at 4:00 pm GMT
- New Zealand Business NZ PMI for March 2025 at 10:30 pm GMT
Markets are waiting on the highly-anticipated U.S. CPI report today, as the inflation figures could strongly impact Fed policy expectations.
Still, this top-tier release and a handful of speeches from central bank officials could have a limited impact on price action if the tariffs drama continues to hog the spotlight, so keep your eyes and ears peeled for trade-related headlines, too.
As always, stay nimble and don’t forget to check out our brand new Forex Correlation Calculator when taking any trades!
