The USD’s weakness will likely be a key topic at the G20 Finance Ministers and Central Bank Governor Meeting on April 23-24 in Washington D.C., which will be part of the Spring Meetings of the IMF and the World Bank. The Trump administration will hold high-level talks with Japan and South Korea on the sidelines, likely including discussions on the weakness of the JPY and KRW. Both countries will likely push back against perceived currency manipulation; Japan Prime Minister Shigeru Ishiba was more vocal in emphasizing fairness in currency discussions.
Japan and South Korea are treading a careful diplomatic line, offering incremental concessions to reduce or remove US tariffs on their imports without capitulating to all US demands and avoiding direct alignment with US efforts to economically isolate China. Japan and South Korea are increasingly seen as model cases for nations navigating the geopolitical and economic tensions between the US and China. Their ability to maintain security alliances with Washington while sustaining economic ties with China offers a playbook for other countries.
Although the IMF is not anticipating a global recession, it will downgrade its global growth forecasts and warn that US-led prolonged trade tensions and policy uncertainties could lead to financial market stress, undermine investor confidence, and pose challenges to financial stability. Despite the darkest global economic backdrop since the global financial crisis, countries are divided at this week’s meetings.
Hence, markets will not take kindly to any renewed efforts by US President Donald Trump to fire Fed Chair Jerome Powell. For example, when Trump said that Powell’s “termination cannot come fast enough” on April 17, the US Treasury 10Y yield rose 4.8 bps to 4.325% amid a 1.3% decline in the Dow, telling Trump that this outcome would fuel stagflation instead of his desire for lower rates. Investors know that Trump cannot unilaterally remove Powell because of disagreements over monetary policy. The US Congress upholds the Fed’s independence embedded in the Federal Reserve Act, which states that the Fed Chair can be removed only “for cause” – misconduct, neglect of duty, or incapacity.
The DXY Index’s fate hinges on its most significant component – the EUR. Having appreciated 10.5% ytd to 1.1440 this morning, EUR/USD faces major resistances near 1.15. The European Central Bank acknowledged the risks a strong EUR poses to inflation and growth. The Eurozone economy faces significant risks from a potential trade war with the US that threatens to overshadow the infrastructure and defence spending boost from the “Readiness 2030” plan.
Quote of the Day
“Rome wasn’t built in one day.”
John Heywood
April 21 in history
Romulus and Remus founded Rome in 753 BC (traditional date).
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