Meanwhile, the European markets show the most prudent optimism as new plans to ramp up military spending lifts economic prospects throughout the continent. In FX markets, on Monday, the EUR/USD traded with a firm bias around 1.0850, retracing some of its losses over the previous three sessions. This news comes as traders are counting down the days to the expected tariff announcements on April 2. Most anticipate this might set up a “sell the rumour, buy the fact” opportunity, sparking higher market volatility.
At the same time, the global economic outlook remains equally ambiguous. Japan’s composite Purchasing Managers’ Index (PMI) has fallen to its lowest point since 2022 at 48.5. The decline underlines concerns about Japan's economic health, potentially prompting the Bank of Japan (BoJ) to consider further tightening measures in response to the falling inflation rates observed recently.
As more timely inflation data is rolled out across the border, we follow up to shed light on these factors. On the other side of the pond, the US core Personal Consumption Expenditures (PCE) metric drops on Friday. This data will give us new perspectives on price trends in the Trump administration. Speculation continues to swirl that President Trump could change course. These plans initially focused on sweeping tariffs on major industries, such as auto manufacturing, semiconductor production, and pharmaceutical manufacturing. This move is meant to bring the spotlight on this “dirty 15” set of countries. Unlike Japan and Germany, these countries have had very large, persistent trade surpluses with the US.
In the UK, attention has turned to the budget and Consumer Price Index (CPI). This follows on the heels of a very hawkish outlier BoE. Private sector business activity in March expanded at a sharper pace than in February, providing further support to the Pound Sterling. This expansion is indicative of a healing risk sentiment. As fears of US reciprocal tariffs subside, so does pressure on the USD, stabilizing jitters on currency pairs.
Gold prices hold solidly above $3,020 per ounce as traders digest a barrage of recent tariff-related headlines. This apparent stability in gold is a sign of cautious optimism among investors who are taking stock of the potential impact of easing US tariffs. The eurozone hardens this optimism with meteoric manufacturing production. It’s now at its highest point since May 2022, reflecting robust industrial activity.
Market participants are particularly focused in US manufacturing PMI surveys for signs of an uptick in input prices hitting US producers. It will be a critical window into the economic landscape and future inflationary pressures stemming from the manufacturing sector.
In another welcome sign of progress, after our blog was published the Trump administration announced plans to roll back tariffs. These tariffs were first scheduled to go into effect on April 2nd. This decision has led to a more favorable market environment, with investors reassessing their positions based on these policy adjustments.