Trade Wars and Data Whiplash: Navigating a Pivotal Week in G7 FX
Article published on April 14th, 2025 1:26 PM UK Time
Table of Contents
- Market Overview
- Macro Theme of the Week: Trade Tensions Eclipse Economic Signals
- Key Data and Events
- UK Labour and CPI Outlook
- Canadian CPI and Bank of Canada Decision
- China Q1 GDP and Activity Suite
- ECB Policy Decision
- US Retail Sales and Consumer Health
- Additional G8 Risk Events
- UK Labour and CPI Outlook
- FX Market Dynamics
- USD, EUR, GBP, JPY, AUD, NZD, CAD
- USD, EUR, GBP, JPY, AUD, NZD, CAD
- Trading Opportunities
- Holiday Trading: Liquidity and Volatility Cautions
1. Market Overview
The previous two weeks delivered exceptional volatility across global asset classes, underscoring the increasingly erratic market regime driven by policy surprises and sentiment shocks. Equity indices such as the S&P 500 entered bear territory before staging a sharp 11% rebound, while US Treasuries bucked conventional haven behavior—yields rose despite risk-off impulses, revealing deep fissures in market confidence toward US fiscal policy and institutional stability.
Simultaneously, the dollar weakened to two-year lows against several G8 currencies, while gold surged to all-time highs amid surging demand for defensive assets. Currency volatility has climbed meaningfully, with spikes across VIX reflecting heightened investor uncertainty over global macro direction. While some relief arrived over the weekend in the form of tariff exemptions—covering semiconductors, tech hardware, and components—headline risk from trade tensions remains dominant, muting the market’s sensitivity to traditional economic data.
2. Macro Theme of the Week:
Trade Tensions Eclipse Economic Signals
A core theme for the coming week is the distortion of macroeconomic signals by the intensifying global trade dispute led by the US. President Trump’s administration recently escalated tariffs on autos and a range of imported components, with a 25% levy scheduled to take effect this week. These measures, coming on the heels of already elevated tensions with China and the EU, have overwhelmed the normal information flow from macroeconomic indicators.
As investors attempt to parse policy intentions, the challenge lies in interpreting whether tariff hikes are transient bargaining tools or markers of a structural shift in global trade. This uncertainty is impacting both risk sentiment and FX markets. The broad implication is that even high-importance releases—such as CPI prints and central bank meetings—may see reduced or short-lived market reactions unless accompanied by trade headlines.
Still, this week brings several potentially market-moving data releases and central bank decisions. How these interplay with the current policy backdrop will define near-term FX dynamics and shape expectations for monetary policy in the G8 space.
3. Key Data and Events
UK Labour and CPI Reports (April 15–16)
The UK labour market data on Tuesday is pivotal in setting expectations ahead of the March CPI release on Wednesday. Policymakers at the Bank of England remain in a bind: they aim to ease policy to support slowing growth, but persistent inflation and wage strength have held back any cuts.
Expectations for the jobs report center on a marginal uptick in the ex-bonus wage measure to 6.0% (from 5.9%), with the unemployment rate expected to remain at 4.4%. However, softening in HMRC payrolls or jobless claims could increase market confidence in a near-term BoE cut. Should the data show unexpected weakness—especially in employment or wage momentum—it may weigh on sterling and amplify the dovish bias heading into CPI day.
For Wednesday’s CPI release, consensus expects headline inflation to slow to 2.7% YoY, with core holding at 3.5%. While Truflation real-time data points to deceleration—tracking CPI at around 2.1%—the impact of April utility and tax resets likely prevents a clean drop just yet. Nonetheless, any downside surprise could serve as a catalyst for increased pricing of the May cut, currently priced at approximately 20bps, and total 85bps by year-end.
Canadian CPI (April 15) and BoC Decision (April 16)
Canadian CPI is expected to reflect the early impacts of March’s trade levies—25% on non-USMCA vehicles and components, 10% on energy and potash, and 25% on steel and aluminium. Although price pass-through may take time due to inventory cycles, markets will be alert to any early inflationary signals.
Wednesday’s BoC meeting is finely poised. Following a March rate cut to 2.75%, the overnight rate now sits at the midpoint of the BoC’s neutral estimate. The Monetary Policy Report (MPR) will update forecasts for inflation, growth, and the output gap, offering critical insight into the Bank’s tolerance for downside risks. Markets are pricing a 68% chance of another 25bp cut, with three full cuts expected by year-end. A surprise hold or particularly dovish guidance would likely trigger notable CAD volatility.
China GDP and Activity Data (April 16)
China’s Q1 GDP is forecast at 5.2% YoY (prev. 5.0%), with accompanying activity data—retail sales, industrial production, and fixed investment—also due. However, this dataset predates April’s aggressive US tariffs and may already be seen as stale.
Still, market attention will be acute. A weaker-than-expected reading could drive risk aversion, hurting pro-cyclical currencies like AUD and NZD, unless accompanied by credible Chinese stimulus announcements. Analysts expect further monetary easing, with Goldman Sachs projecting up to 60bps in rate cuts this year. Fitch’s downgrade of China’s credit rating also underscores fragility. Conversely, a strong GDP print would suggest resilience and may bolster risk assets.
ECB Policy Decision (April 17)
The ECB is widely expected to cut its deposit rate by 25bps to 2.25%. With the meeting not accompanied by updated macro projections, communication will be closely watched. A shift in tone acknowledging trade war risks, or language reinforcing a data-dependent stance, could shape EUR price action.
Although markets have priced this cut (95% probability), the ECB’s guidance on subsequent action remains unclear. A surprise hold would likely spark EUR strength, particularly given recent momentum toward 1.15 in EUR/USD. But barring such a surprise, a dovish message may cap further gains.
US Retail Sales (April 16)
The ECB is widely expected to cut its deposit rate by 25bps to 2.25%. With the meeting not accompanied by updated macro projections, communication will be closely watched. A shift in tone acknowledging trade war risks, or language reinforcing a data-dependent stance, could shape EUR price action.
Although markets have priced this cut (95% probability), the ECB’s guidance on subsequent action remains unclear. A surprise hold would likely spark EUR strength, particularly given recent momentum toward 1.15 in EUR/USD. But barring such a surprise, a dovish message may cap further gains.
Other Notable Events
- RBA Minutes (April 15): May offer clues on the Bank’s inflation outlook and rate path.
- New Zealand CPI (April 16): Q1 CPI expected at 0.7% QoQ, 2.3% YoY. A miss versus RBNZ’s forecast could influence dovish expectations.
- Japanese CPI (April 18): March CPI due on Friday during thin Easter liquidity.
4. FX Market Dynamics
USD
The dollar faces conflicting drivers: tariff headlines offer short-term upside, but market sentiment remains fragile. With net positioning now short, the greenback has room to rally on data or a bond market reprieve. Nevertheless, concerns about US growth, fiscal policy, and trade blowback may limit sustained upside.
EUR
Recent strength driven by German fiscal expansion and softening Bund-US spreads is at risk if ECB reinforces easing. The single currency is sensitive to global risk sentiment and could suffer if Chinese data disappoint or US tariffs escalate further.
GBP
Sterling is vulnerable to weak labour or inflation data, especially as the market leans toward a May rate cut. With fiscal risks persisting and inflation above target, GBP may struggle to sustain recent gains unless CPI underperforms meaningfully.
JPY
Despite haven status, JPY has underperformed amid long positioning unwind and US-Japan yield differentials. USD/JPY may continue higher, although sharp risk-off events could prompt JPY gains versus AUD and NZD.
AUD / NZD
Both currencies remain tethered to China’s economic fortunes and tariff-linked risk sentiment. While local data (employment for AUD, CPI for NZD) may offer tactical moves, broader drivers remain external. AUD continues to face the added pressure of expected RBA easing.
CAD
Short-term outlook hinges on BoC’s tone and CPI print. Strong CPI or a surprise hold may offer temporary support. However, CAD remains exposed to broader tariff implications and domestic growth uncertainties.
5. Trading Opportunities
GBP Short Opportunity Around UK Labour and CPI Data
- Setup: The Bank of England is in a policy dilemma—growth is slowing, but inflation remains too high to justify immediate easing. However, if the UK labour market shows significant deterioration (e.g., rising unemployment, soft wage growth) and is followed by a weaker-than-expected CPI print, this would significantly increase the probability of a May rate cut, which is already ~20bps priced.
- Trade Rationale:
- A double miss on labour and CPI would likely trigger GBP downside, especially as the market shifts to fully pricing the May cut.
- GBP positioning is mildly long, creating additional downside risk via positioning unwind.
- A double miss on labour and CPI would likely trigger GBP downside, especially as the market shifts to fully pricing the May cut.
- Trade Expression:
- Short GBP/USD or GBP vs. stronger G8 pairs like USD or JPY near event windows.
- Watch for CPI downside surprise to increase momentum.
- Short GBP/USD or GBP vs. stronger G8 pairs like USD or JPY near event windows.
CAD Volatility Play Around CPI and BoC Rate Decision
- Setup: The Bank of Canada meeting (Apr 16) is closely tied to CPI data (Apr 15), and the market is pricing in a 68% probability of a cut. This puts the BoC in a binary position where either a dovish cut or a surprise hold could trigger strong directional moves.
- Trade Rationale:
- A strong CPI print + BoC hold = potential CAD upside, as rate cut expectations are pared back.
- A soft CPI + BoC cut = likely CAD downside, confirming easing bias amid softening domestic conditions.
- A strong CPI print + BoC hold = potential CAD upside, as rate cut expectations are pared back.
- Trade Expression:
- Short-term USD/CAD downside on hawkish outcome, or long USD/CAD into dovish surprise.
- Alternatively, express via CAD crosses (e.g., long EUR/CAD or GBP/CAD) for diversified exposure.
- Short-term USD/CAD downside on hawkish outcome, or long USD/CAD into dovish surprise.
6. Holiday Trading: Liquidity and Volatility Risks
The upcoming Easter holiday (Friday, April 18) introduces structural market risks:
- Reduced Liquidity: Key centers will observe market closures from Friday, with early desk wind-downs likely on Thursday.
- Thin Volumes: Lower participation may amplify reaction to any late-week surprises—especially if Chinese GDP disappoints or major central banks surprise markets.
- Widened Spreads: FX market depth will diminish into the weekend, increasing slippage risk.
Take care and have an excellent trading week!