On Tuesday, the US dollar index fell back and lost the 103 mark. As of now, the US dollar is quoted at 102.14.
Trump: I had a pleasant call with the Acting President of South Korea. Other countries hope to reach an agreement with the United States.
US Trade Representative: The President will not accept the situation where Wall Street dominates the economy. There are no "exceptions and exemptions" for tariffs and no negotiation timetable.
The U.S. Customs and Border Protection Agency reiterated that the specific tax rates of each country will take effect at 12:01 a.m. on April 9 (12:01 noon on April 9, Beijing time), and Canada's 25% auto tariff on the United States will also take effect.
The European Union is expected to submit a follow-up response plan to the U.S. tariffs early next week.
Indonesia announced that it will reduce import taxes on U.S. steel, mineral products and information technology products from 5-10% to 0-5%. It will reduce import taxes on electronic products, mobile phones and laptops from 2.5% to 0.5%.
U.S. media: Trump promised on Monday that he would propose a $1 trillion defense budget proposal for the first time, setting a record high.
Trump signed an executive order to promote coal development, seeking to use coal power to dominate the development of artificial intelligence.
San Francisco Fed President Daly: Policy is in a very good state and is moderately restrictive. We can be cautious in policy.
Chicago Fed President Goolsbee: Tariffs far exceeding expectations pose inflation risks, and there are concerns about returning to the past predicament.
It is reported that consultations between Russia and the United States will be held in the next few days.
Mizuho Bank economist Yasunari Ueno said that importing more rice from the United States may be one of Japan's bargaining chips in seeking exemptions from Trump's increased tariffs. He said: "Rice price increases have become a major political issue in Japan, and the general view is that the reason is the tight balance between supply and demand." Importing rice from the United States may help ease the pressure on Japanese rice prices. He added: "If the sales price falls too much, it may hit domestic farmers, but in this case, the government can provide support." Previously, the Trump administration said that Japan imposed a 700% tariff on rice imported from the United States, but the Japanese side denied it.
On Wednesday, investors continued to seek safe havens amid concerns about a global recession caused by tariffs, and yen buying continued for a second consecutive day. In addition, U.S. President Trump reportedly agreed to meet with Japanese officials to launch trade negotiations after a phone call with Japanese Prime Minister Shigeru Ishiba, which added to optimism that the U.S. and Japan could reach a trade deal. This, coupled with expectations that the Bank of Japan will continue to raise interest rates against the backdrop of widening domestic inflation, also supported the yen. At the same time, the hawkish expectations of the Bank of Japan contrasted sharply with expectations of more aggressive rate cuts by the Federal Reserve, leading to a further narrowing of the interest rate gap between Japan and the United States. Investors are now looking forward to tonight's Fed meeting to provide some impetus for Thursday's CPI data.
Technically, the USDJPY failed to break through 148 this week and then fell, which favors the bears. In addition, the daily oscillator remains in the negative zone and remains far from oversold, indicating that the path of least resistance for the USDJPY is to the downside. A sell-off below the 145 mark would reaffirm the negative outlook and expose the year-to-date low, which is around the 144.55 area hit on Monday. Further down, watch the 144 level.
On the other hand, 146 now seems to limit the momentum of the USDJPY's attempt to rebound. The USDJPY needs to break through this morning's high of 146.35 to promote short-covering and return to 147, and then enter 147.4-147.45. Further gains should allow bulls to recapture 148 and test this week's high near 148.15. A breakout could turn the short-term outlook bullish.
The ECB is likely to cut its policy rate by 25 basis points on April 17, bringing the deposit rate to 2.25%, Barclays economists said in a report. They said the expected decision would be justified as inflation continues to decelerate, approaching the ECB's medium-term target of 2%, and downside risks to economic growth will materialize. They said the ECB is likely to continue to describe risks to the inflation outlook as two-way, remain cautious, avoid providing policy guidance for future decisions, and stick to a meeting-by-meeting approach to making decisions. Barclays expects the ECB to cut interest rates by 25 basis points at each meeting until October, when the deposit rate will reach 1.25%.
The dollar has gone from being the undisputed market darling at the beginning of the year to losing its aura of American exceptionalism under harsh tariff policies. We expect the dollar to weaken further once market uncertainty begins to subside and the Fed begins to cut interest rates. The rate cuts may come earlier and more sharply than previously expected.
Each country hit by US tariffs now has several options: ① retaliate with tariffs on US goods; ② negotiate a trade deal with the US government; ③ stimulate the economy through fiscal support; ④ relax monetary policy to curb the impact of tariffs on economic growth. The first option will be the least market-unfavorable outcome, while all other options will be more market-friendly. If Europe chooses option 3, it will likely support the euro; but if it chooses option 4, it may weaken the euro. As for options 1 and 2, the impact on the euro is less certain and depends on the reactions of other countries.
Although the EU has not yet announced its course of action, we expect news on these four options to dominate in the coming weeks. This may cause the euro to rise or fall based on the news dynamics, and may fluctuate sharply. However, with the decline in US economic growth expectations and the faster-than-expected rate cuts by the Federal Reserve in 2025, the US dollar should face pressure.
After the recent surge in EUR/USD, we expect the euro to consolidate around 1.10 until there is further clarity on the above options. We believe that the Fed has more room for monetary policy easing than the ECB, which should lead to a higher EUR/USD. Downside technical support for EUR/USD is expected to be at 1.0750 and 1.06, while upper resistance is at 1.12 and 1.15. In addition, we have adjusted our short-term forecasts, bringing forward the previous forecast of EUR/USD at the end of the year at 1.10 to June, and raising the target prices for September, December and March 2025 to 1.12, 1.12 and 1.14, respectively.