7 April 2025
Last week was dominated by the lead up to Trump’s “Liberation Day” tariffs. This week is likely to be dominated by their aftermath. Uncertainty is the dominant sentiment.
Market Recap: Key Movers from Last Week
Market reaction was swift to the tariff announcements, with the dollar tumbling to a near six-month low against the euro amid fears of a US recession. The euro jumped +6.47% on Thursday, while the pound also hit a six-month high against the dollar, rising +9.16%.
But the volatile nature of the market was highlighted on Friday, with sterling turning lower against the dollar after Thursday’s gains, as investors looked to safe haven currencies. The pound closed the week -1.33% vs the start of the week. Sterling also hit a seven-month low against the euro, with the GBP/EUR trading -3.58% since February.
Better-than-expected monthly US payroll figures offered some relief to the gloom on Friday, suggesting the US economy is in relatively good shape for the time being and prompting the dollar to rally.
What’s to come
Traders are pricing in new rounds of interest rate cuts to mitigate the damage caused by the tariff news. Money markets are predicting 75 basis points of cuts by the Bank of England in the remainder of 2025. In the US, four quarter point interest rate cuts are now expected before the end of the year. The European Central Bank is expected to cut rates in April.
Volatility is likely to be the name of the game this week too, with Goldman Sachs raising its US recession probability forecast from 35% to 45%. China announced an additional 34% tariff on US goods on Friday, sending stocks tumbling. The EU is expected to announce its own reciprocal measures in the next few days. The UK government is taking a more cautious approach but traders are bracing for the possibility of a prolonged trade war. We expect market sentiment to remain defensive until the tariff dust settles.
How we can help you:
In a highly turbulent environment, ensuring effective currency risk management and margin protection is essential. We work with clients to manage volatility and mitigate risk.
At Lumon, we help businesses manage downside risk in foreign exchange markets while providing the flexibility to benefit from favorable rate movements.
To discuss how we can support your business, please contact your dedicated currency specialist on +44 (0) 203 384 7280 to discuss solutions tailored to your needs.
