Fed Powell was hawkish last night, focusing on longer term inflation expectations, stressing that the Fed must ensure tariffs don’t trigger a more persistent rise in inflation. He also acknowledged that a weakening economy and higher inflation could bring the Fed’s two goals into conflict. As a result, stocks dropped and we saw flow back into safe havens once again. However, some of these moves were reversed after Donald Trump said ‘big progress’ was made with Japanese trade delegations and more talks will take place later this month.
*Daily move - against G10 rates at 7:30am, 17.04.25
** Indicative rates - interbank rates at 7:30am, 17.04.25
Today, the ECB is widely priced-in to cut rates down to 2.25% amid slowing inflation and concerns of the impact of US tariffs on the economy. Christine Lagarde will be speaking after, but the consensus in the markets seems to be that there will be very little change in guidance and thus we expect market pricing to remain the same.
The next projected rate cut from the ECB will likely be in June, with another cut expected in October. Italian PM Giorgio Meloni is set to meet Donald Trump later today at the White House. Any positive feedback should support risk appetite going into the weekend.
Trading this week around USD has largely been one of consolidating within a 1% range as markets continue to digest the persistent swings in sentiment.
Read more about the ECB's interest rate decision here - When is the next ECB interest rate decision?
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