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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Analysis]: Sino-US tariffs suddenly spread and Trump's words are amazing!". Hope it will be helpful to you! The original content is as follows:
The US dollar index maintained a fluctuation of 99.18, Bitcoin remained stable around $94,500, and gold fell back by $3,319 to breathe. China exempts US ethane from 125% tariffs, and US President Trump said China will digest the new impact of tariffs. The weak U.S. labor market and consumer confidence data have boosted market expectations for policy easing.
The U.S. dollar also benefited from buying at the end of the month, and investors sought to rebalance their portfolios after Trump announced a reciprocal tariff policy that led to sharp declines in U.S. stocks and U.S. bonds in April.
A European trader said that the end of the month-end fund flows support the US dollar, with a larger scale than usual.
Trump signed an executive order on Tuesday to ease the pressure on local operators by passing tariff reductions and other credit mechanisms. This move is a policy adjustment made after car dealers actively lobby.
U.S. Treasury Secretary Bescent said on Tuesday that the government has made "substantial progress" in tariff negotiations and predicted that a trade agreement with India and South Korea will be released soon. He noted that talks will be held with at least 17 trading partners in the coming weeks.
U.S. Commerce Secretary Lutnik revealed that the United States has reached a trade agreement with a certain country and is waiting for the country's approval to announce it.
UBS FX strategist Vassili Serebriakov said: "This is partly due to factors such as auto parts tariff reductions, and the dollar usually performs better when the stock market is rising recently. But I think these effects should not be over-interpreted, and the dollar buying caused by asset redistribution at the end of the month may also be the main cause."
Australian Treasury Secretary Jim Chalmers said on Wednesday, "The market is expected to beFurther interest rate cuts will be made after inflation data are released.
He added: "(I) did not see any of these figures that would substantially change market expectations.
European Market
The ECB March Consumer Expectation Survey showed that consumers raised inflation views in a relatively cautious manner rather than panic. Overall, the results showed slight inflation concerns on the one hand, but still suppressed the growth prospects on the other.
Medium expected inflation for the next 12 months rose 0.3% to 2.9%, the highest since April 2024.
Looking forward, expectations for future inflation rose slightly by 0.1% to 2.5%, also hit a one-year high.
Newly introduced five-year inflation expectations Staying stable at 2.1%, indicating that long-term expectations remain relatively stable.
Uncertainty in the inflation outlook remains at the lowest level since January 2022.
On the broader economy, the survey shows that consumer expectations for next year's revenue growth remain at a moderate level of 1.0%, while expected nominal spending growth has dropped slightly to 3.4%.
Economic growth expectations remain weak, stabilizing at -1.2% in the next 12 months.
Piero Cipollone, a member of the Executive Committee of the European Central Bank, warned today that the recent surge in trade policy uncertainty poses a significant risk to euro zone growth. In a speech, he stressed Europe Internal research by the central bank shows that rising uncertainty could reduce business investment in the euro zone by -1.1% in the first year, while real GDP growth could fall by about -0.2% in 2025-26.
Finance market volatility in the financial markets, with rising global trade tensions, could further drag down growth. ECB staff estimates that the observed increase in volatility alone could reduce euro zone GDP by another 0.2% in 2025.
Cipollone stressed that in the medium term, tariffs will have a "clear recession effect" on the two economies that impose and accept restrictions, noting that the exchange rate's ability to "absorb tariff shocks" seems to have weakened.
The ECB's analysis of fragmentation scenarios A more bleak picture. In the case of moderate decoupling of the East and West, global output may fall by nearly -2%. In the case of severe decoupling, trade between groups is completely stopped and global output may plummet as much as -9%.
Economies that rely on trade will suffer the worst losses, with the EU's GDP falling between -2.4% and -9.5%, depending on the severity. It is worth noting that in the most extreme cases, the United States itself may shrink by nearly -11% if the United States "imposes additional trade restrictions on Western and neutral economies."
While the impact of trade fragmentation on growth is obvious, the impact of inflation remains uncertain. For the eurozone, the power of recession is stronger.The strong real interest rate and the appreciation of the euro may create a "deflation: trend" in the short and medium term.
GfK consumer confidence index in Germany rose from -24.3 to -20.6 in May, and performed better than expected to fall to -26.0.
In April, key basic indicators also showed encouraging signs. Revenue expectations rose sharply for the second consecutive month, climbing 7.4 points to 4.3, the highest level since October 2024. Economic expectations have been moderately raised for the third consecutive month. The willingness to save decreased, while the willingness to purchase improved slightly.
NIM consumer expert Rolf Bürkl pointed out that the radical tariffs announced by U.S. President Donald Trump in early April "has not yet had a lasting impact on consumer sentiment in Germany."
In contrast, German consumers seem to be more at ease with their domestic political background, especially the successful end of the alliance negotiations and the impending formation of a new government. Easing of political uncertainty can help alleviate the potential negative impact of external trade tensions.
The World Federation of Large Enterprises Consumer Confidence Index fell from 93.9 to 86.0 for the fifth consecutive month, lower than the expected 87.1. The current situation index fell slightly by -0.9 points to 113.5. But what is really worrying is the expectation index, which plummeted -12.5 points to 5.4, the lowest level since October 2011. It is well below the 80 threshold, traditionally suggesting a recession may occur next year.
Stephanie Guichard, senior economist at the Conference Board, noted that the deterioration is almost entirely due to weaker expectations for business conditions, employment prospects and future incomes.
It is particularly worrying that the percentage of consumers who expect job reductions to soar to 32.1% in the next six months, the worst of the Great Recession in 2009. For the first time in five years, expectations for future income outlooks have turned negative, suggesting that economic concerns are now spreading to personal financial concerns.
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