USD found some support yesterday, breaking its 5-day losing streak after better-than-expected manufacturing survey data. The EUR lost ground with ZEW survey numbers coming in weaker than expected, as well as reports suggesting that the EU and US made very little progress in bridging differences in trade talks.
GBP had a solid day after comments by US Vice President JD Vance that there are good chances of a UK-US trade agreement. Markets shrugged off the morning's job numbers which showed that UK business shed around 78,000 jobs in March – the fastest rate since the pandemic. That, all before a £26bn rise in payroll taxes. Additionally, since the October budget, the number of people on payroll has dropped by 120,000.
CPI in Canada came in weaker than expected, seeing markets fully price-in 50 bps worth of rate cuts by year's end.
*Daily move - against G10 rates at 7:30am, 16.04.25
** Indicative rates - interbank rates at 7:30am, 16.04.25
UK CPI eased for the second consecutive month, dropping to 2.6% from 2.8% - worse than the expected fall to 2.7%. As a result, markets have added to rate cut bets for this year, now pricing in 86bp of cuts, up from 82bp yesterday. A 25bp cut in May is now fully priced-in from the BoE.
Risk appetite is slightly lower this morning after Trump barred Nvidia from exporting its H20 chips to China as part of his continued trade war against the country. Trump is looking at imposing tariffs on critical minerals. Not even better-than-expected GDP numbers from China (5.4% in Q1) is lifting the mood.
For the rest of the day, we focus on US retail sales numbers due out at 1.30pm. A weaker than expected number will likely add to the current negative sentiment on the US economy. This would likely encourage more selling of US assets and thus a potentially weaker USD. Fed Powell is also speaking this evening. It's clear from recent commentary that the Fed will be focusing on inflation rather than growth, so, it's likely we hear similar comments today.
Furthermore, the Bank of Canada interest rate announcement is out later today, with no change expected. But given that yesterday's CPI numbers came in weaker than expected, commentary could turn dovish.
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