GBP

Sterling rallied against the dollar almost in lockstep with the euro last week, as markets struggled to make fine distinctions amid the chaos in the US. Important, albeit lagged, data last week included the latest labour market report and the March inflation print. The former continues to hold up well, despite the increase in business costs brought about by the Autumn Budget, with steady job creation and solid, yet moderating wage gains. As for the latter, the Bank of England received a piece of good news as March CPI came in lower than expected, opening the door for a cut in May, which is now fully priced in by markets.

This week looks set to be another interesting one for the pound. The preliminary PMI figures for April will be closely watched on Wednesday morning, followed by the latest retail sales data on Friday. A handful of speeches from MPC members are also on the docket, with policymakers likely to lay the groundwork for a May rate reduction. Overall, we think that GBP is well situated to profit from the volatility in markets, given its relatively low exposure to US tariffs, resilient demand and the prospect of closer ties with the European Union.

EUR

The euro rallied in tandem with all G10 currencies, suggesting that last week we saw more of a “sell the dollar” than “buy the euro” market move. Since “Liberation Day”, the euro has, however, been the best performing major currency in the world, save the Swiss franc, suggesting that Eurozone markets are receiving a significant part of the capital that is fleeing the US. The fact that the common currency continues to rally even after last week’s fairly dovish ECB meeting confirms this.

Speaking in her post-meeting press conference, President Lagarde essentially confirmed that the tariff news had forced the bank’s hand this month, while warning that the trade protectionism could tip the bloc’s economy into a recession. She also signalled that the ECB was willing to lower rates below the ‘neutral’ level in the face of the current shock. Markets are currently pricing in a terminal rate below 1.5%, yet currency markets don’t seem to mind the low interest in return for the relative institutional stability of the Eurozone.

USD

The only macroeconomic information that we have received so far reflecting the chaos and disorder that followed “Liberation Day” are sentiment surveys. Thus far, all of these indicators paint a uniformly bleak picture. Consumers and manufacturers fear higher prices from the tariffs and the latter, in particular, are pulling back sharply on their investment plans amid the uncertainty. This is remarkable as US-based manufacturers are the intended beneficiaries of tariff policies.

The only reliable real economic data point, however, is the weekly jobless claims data, which has not increased and suggests that this uncertainty has not yet resulted in mass layoffs. This week we’ll get additional April data points: weekly jobless claims, and further regional Fed surveys. To the extent that markets can afford to pay attention to anything but Trump’s eruptions, these will be the focus of the week.