Main currency pairs treading water

The main currency pairs were not much changed yesterday with the euro and sterling trading in narrow ranges against the dollar either side of $1.08 and $1.29 respectively and EURGBP hovering in and around £0.8350. They are likely to continue treading water today ahead of Trump’s tariffs announcement due at 9pm Irish time tonight. Reports suggest the tariffs will be imposed widely and effective immediately, though whether the tariff rates are uniform or differentiated (“reciprocal”) is unclear, while other countries, including the EU, have said they will retaliate with tariffs of their own.

After a torrid first quarter of the year, US stocks chalked up modest gains at the start of Q2 with the S&P 500 and Nasdaq up 0.4% and 0.9% respectively, while European stocks closed almost 1.5% higher. Government bonds extended their recent rally, with yields ending lower on the day, helped by some softer than expected economic data.

Inflation in the Euro area eased in March according to yesterday’s flash release. Headline inflation was in line with the consensus forecast at 2.2%, down from 2.3% in February and just shy of the 2% target, while core inflation was a touch lower than expected at 2.4%, down from 2.6% in February. The decline in core inflation was due entirely to a second consecutive fall in services inflation, to 3.4% from 3.7%, as core goods inflation was unchanged at 0.6%.

The ISM index of manufacturing activity in the US fell back into contractionary territory (<50) last month, coming in at 49.0, with tariffs a widespread concern among survey respondents. Output, new orders and employment all declined in March, while input prices rose partly reflecting the impact of recent tariff increases.

Ahead of Trump’s “Liberation Day” announcement tonight, it is quiet in terms of economic data with the ADP private employment report and capital goods orders in the US the only releases of any note.