Published: April 16th, 2025
The Pound regained some of its losses against the Greenback and Euro on Monday following the most recent update to the Trump administration's tariff policy. Implementation has been pushed back by 90 days to give countries time to negotiate.
GBP/USD saw a lift of nearly 100 points to 1.2849 and above, while GBP/EUR pushed up neary 150 points to regain the 1.16 handle, spurred by a social media post by President Donald Trump saying his global tariff regime would be lowered to 10 per cent for most countries and that implementation would be pushed back by 90 days.
Analysts say the ‘relief rally’ triggered in global equity markets, plus the possibility of stabilization in the Sterling bond market, could fuel a GBP recovery this week. The Pound may also get support from the downward bias of the trade-weighted Renminbi, a persistent headwind for USD.
‘China has gone into full fight mode,’ said a market analysis by Commonwealth Bank of Australia's forex strategy unit. ‘Beijing's aggressive posture points to one-for-one retaliation with the US, a situation that will probably persist over the near term. That poses added downside risks to Chinese economic growth and could also raise inflation.’
Trump raised the tariff on Chinese imports to a punitive 125 per cent after the country's Commerce Ministry raised its retaliatory levy to 118 per cent, creating a new headwind for the world's second largest economy. The move will also pressurize China's currency, which has seen a slow but steady depreciation since the latest US-China trade conflict began.
The tariff battle is also a headwind for the Greenback since the maths behind Beijing's managed-floating exchange rate creates a positive correlation with, and arguably a peg to, USD. Controlled parity fixings and trading limits also allow China's central bank policymakers to manage the pace of depreciation.
The Euro slipped against the Dollar at the beginning of this week's trading session as forex traders responded to US President Donald Trump's weekend announcement that new tariffs on US imports would be imposed in February.
The White House said that a 25 per cent import duty was being levied against all steel and aluminium imports to the US, and that other tariffs would be announced in the coming days.
A note to investors from Bank of America (BoA) noted that ‘USD had gained across the board’ in the immediate aftermath of the announcement, while treasury yields rose on inflation worries and investors priced-in lowering odds for a second Fed rate cut in 2025.
Trump told reporters on Monday that new tariffs would be announced this week that equal those already levied by other countries against American goods, suggesting tariffs on EU products are now in the offing.
France's French foreign minister, Jean-Noel Barrot, told Reuters that the EU ‘must act to defend its interests,’ saying that the bloc will need to impose retaliatory measures if Trump makes good on his threat.
‘Trump tried this in 2018 and we responded in kind. We will do so again,’ he said. ‘The Commission is prepared to pull the trigger in response to any trade provocation.’
The potential for tit-for-tat tariffs suggests that Euro-Dollar weakness could be on the table in the short term.
Against that backdrop, US inflation readings could be definitive. Notable rises could give be supportive for Greenback some legs, BoA wrote, and push EUR/USD below 1.03. Alternatively, indications that inflation is subsiding could weigh on the Dollar as it would give hope for more than one Fed cut this year.
In October 2024, an analyst note from investment bank Jefferies suggested a dip in the Euro to Dollar rate's 200-day moving average marked a significant deterioration in the pair's technical outlook.
The firm's forecast model relies on the 200-day displaced moving average (DMA), placing the pair in a multi-week downtrend when below, and an uptrend when above.
‘The 200 day moving averages can be key long-term milestones where fiat currencies sometimes get caught and stay above or below their moving averages for extended periods.’
At that point the 200 DMA was located at 1.0872, with signals suggesting the technical level was acting as a ceiling, even as rebounds seen the previous week attempted to rise above it.
The immediate outlook was for EUR/USD to wallow below the 200 DMA and likely to retest the seven-day average of 1.0810.
The single currency was under pressure as more and more traders concluded that the European Central Bank (ECB) would cut interest rates more deeply, and at a more aggressive pace, than the US Fed.
That sentiment had already impacted Eurozone bond yields negatively versus the US. The week prior, Frankfurt responded to the Eurozone's softening inflation readings by reducing interest rates by another 25 basis points.
Multiple ECB speakers, including bank President Christine Lagarde, took to the financial event circuit and began dropping hints about what the policy future holds for EUR. Upside risks had ECB members attempting to lower expectations for the rate of future cuts, especially given the bank's recent aggressive footing.
EUR reached a peak of 1.1174 USD in late August 2024 and was up 2.61 per cent against the USD for the month. While momentum had shown signs of slipping, FX strategists at Convera said the EUR/USD rate could still test the 30-month range close to USD 1.12 before the month concluded.
EUR had been riding high since release of the Federal Reserve's July-end policy meeting minutes on Wednesday, 21st August. The minutes revealed that a number of Fed policymakers were ready to cut rates then and there, raising expectations for a September reduction and additional cuts in the following months
In a note to investors, Convera wrote that aggressive bets on Fed easing ‘(had) been overshadowed by economic weakness in the Eurozone. EUR's August rally has been steady and consistent, pushing it to a one-year high against USD.’
