FX Outlook
Daily FX Report

Daily FX Report

Reciprocal Tariffs in Focus

Wed 02 April 2025 07:00

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Authors

Daria Efanova Head of Research

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EUR / USD

EUR/USD held its nerve above the 1.08 mark as markets anxiously await President Trump's upcoming "Liberation Day" tariff announcements, with the European Union particularly vulnerable to potential 20% tariffs on most imports. The ECB's likely rate cut in April, supported by moderating inflation data showing 2.2% in March, could weigh on the euro and in combination with escalating trade tensions, the longer-term upside seems limited.

Technical analysis reveals the pair trading within a defined range, with crucial support at 1.073 and resistance at 1.095, while the 20-day moving average at 1.0841 serves as a pivotal upside level. Recent hedge fund positioning shows increased euro purchases despite looming tariff threats, creating vulnerability to a potential selloff if trade measures exceed market expectations. A breach below 1.073 support might trigger a decline toward 1.028.

USD / JPY

USD/JPY held its nerve in anticipation of potential US auto tariffs, which could weigh on domestic performance. Despite Japan's export-dependent economy showing signs of strain, the yen has demonstrated remarkable strength, gaining approximately 5% against the dollar in the first quarter of 2025.

Technical analysis reveals a bearish trend, with the currency pair trading below major moving averages and encountering strong resistance around 150.26. The Bank of Japan's hawkish shift and rising inflation expectations have provided additional support for the yen, contributing to its recent appreciation against the dollar.

Market participants are particularly focused on Trump's upcoming "Liberation Day" tariff announcement, which could trigger substantial volatility in the USD/JPY pair and potentially drive it toward the support level of 146.75 if current diplomatic efforts to secure exemptions prove unsuccessful.

GBP / USD

GBP/USD remained broadly unchanged as market sentiment was dominated by the anticipated US tariff announcement on April 2nd, though the UK's relatively small goods surplus with the US suggests limited exposure to potential tariff impacts. Prime Minister Starmer's indication of advanced trade talks with the US presents a potential buffer against adverse effects, while the pound benefits from seasonal support due to FTSE dividend-related repatriation flows.

From a technical perspective, the pair maintains a narrow trading range between 1.288 and 1.293, with strong support established at the 200-day moving average of 1.28. The currency pair's outlook is further influenced by monetary policy expectations, with markets pricing in 54 basis points of Bank of England rate cuts by year-end and anticipating the first cut by June. The pound's resilience is underpinned by neutral market positioning, with technical analysis suggesting a continued sideways trend. Today's tariff statements will be crucial for guiding the US dollar narrative and, in turn, the sterling.

Economic Calendar

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Disclaimer

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This report was prepared with the assistance of artificial intelligence.

A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

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