Sterling has unwound all of last Friday’s Brexit optimism with the pound paring back 0.7% this week so far against the US dollar. On the face of it, the Brexit riddled coinage has fared relatively well compared to its G10 compatriots as trade tensions resurface. This is likely due to the idiosyncratic risk of Brexit dominating sterling’s price action while it already sits at historically low levels. While the UK’s currency trades in a nonchalant manner, the Prime Minister remains under pressure. The list of Tory MPs that are throwing their hat into the ring to become future PM is growing by the day. It currently consists of Former Brexit Secretary Dominic Raab, leader of the House of Commons Leadsom, and now Former Work and Pensions Secretary Esther McVey. All the speculation comes after current Prime Minister, Theresa May, announced that she will meet with the 1922 committee next week to discuss her future. Today will see the release of Q1 GDP, where the economy is expected to pop up from last month’s lacklustre growth of 0% to 0.2%, dragging the Q1 reading up from 0.2% to 0.5%.


The single currency experienced an unexpectedly strong performance yesterday after escalating trade tensions and equity sell-offs appeared to have strengthened the single currency. French Industrial performance wasn’t able to keep up with its muscle-flexing German counterpart we saw earlier in the week, as the French March reading showed a 0.9% contraction on the month. Together with leading indicators taken from economic surveys, this signals the manufacturing industry may have a negative contribution to French growth in Q2. The Italian figures are released at 9:00 BST.


Trump’s arsenal of extra trade tariffs hasn’t proved to be as victorious as other arsenals. Contrary to the recent tradition of dollar strength on the back of increased trade tensions, USD lost a fair amount of ground yesterday as markets prepared for the new tariffs President Trump confirmed this morning. Instead of safe-haven flows into the deep and liquid dollar markets, an equity sell-off appears to have caused a spike of weakness yesterday at the end of the afternoon. Trump announced the tariff rate on $200 billion of Chinese exports will be more than doubled, from 10% to 25%. The big question in markets now is how China will respond to this offensive move in the US-China trade war, which can lead either to an escalation or a de-escalation of tensions. So far the Chinese reply has been measured, as the Ministry of Commerce issued a statement saying it “deeply regrets” the US decision. However, it also mentions China will respond with countermeasures, a response which undoubtedly will cause further volatility rippling through markets today. The US Consumer Price Index released at 13:30 BST will be of secondary importance today.


The loonie has begun to post a mild rally this morning as oil prices rise and the US dollar falls gently across the board. The soothing risk environment bodes well for crude and the loonie which is tarnished by slow economic growth. At 13:30 BST Canadian labour market data is released.

FX Elsewhere

Run to safety? Not quite yet. FX markets have batted off the formal heightening of tariffs from the US this morning due to conciliatory tones struck by Chinese representatives early this morning – even the risky EM space is showing a mild rebound. The lack of reaction from Chinese authorities, who are still yet to release their retaliatory restrictions, along with a “beautifully written letter” from President Xi has also reduced the market turmoil this morning. Further, the increase in US tariffs doesn’t bind on goods already in transport. This gives a 2-4 week window before the real effects of any escalation in tensions begin to be felt. All in all, despite the ramping up in tensions between the two parties, talks will continue today as haven currencies such as JPY and CHF continue to trade flat. The Chinese yuan, the best bellwether for trade tensions, has begun to reclaim some ground against the greenback in a classic case of “buy the rumour sell the fact” price action, while Chinese equities also bounce after yesterday’s rout.