Summary of the week - 4 Apr 25

Interest rate

• US:

  The Federal Reserve left its benchmark interest rate unchanged at 4.25%–4.5% during its March 2025 policy meeting, as widely expected, maintaining a pause in its rate-cut cycle that began earlier this year. While acknowledging rising uncertainty around the economic outlook, policymakers reaffirmed their expectation of approximately 50 basis points in rate cuts by year-end, consistent with projections made in December.

  However, the Fed revised down its GDP growth outlook, projecting the U.S. economy to expand by 1.7% in 2025, down from the 2.1% forecast in December. Growth estimates were also trimmed for 2026 (1.8% from 2%) and 2027 (1.8% from 1.9%), reflecting a more cautious stance on the economy’s long-term trajectory.

  In contrast, the Fed raised its forecast for PCE inflation, now anticipating 2.7% in 2025 (up from 2.5%) and 2.2% in 2026 (previously 2.1%), while keeping its 2% target for 2027 unchanged. The unemployment rate is projected to rise slightly to 4.4% this year, up from a previous forecast of 4.3%, with no change expected for 2026 and 2027 (4.3%).

  In a notable move, the central bank also announced plans to scale back the pace of balance sheet runoff, reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion starting in April. This adjustment signals a more tempered approach to quantitative tightening as the Fed seeks to balance inflation control with financial stability and growth concerns.

• UK:

  The Bank of England voted 8-1 to maintain its benchmark Bank Rate at 4.5% during its March 2025 meeting, as officials adopted a wait-and-see approach in light of persistent inflationary pressures and rising global uncertainties. The lone dissenter, Swati Dhingra, continued to advocate for a 25 basis point cut to 4.25%, citing softer domestic demand and concerns about the economic impact of prolonged monetary tightening.

  The Monetary Policy Committee (MPC) emphasized that a gradual and cautious strategy remains appropriate, given the medium-term outlook for inflation. Headline CPI inflation rose to 3.0% in January, and the Bank now expects it to peak at around 3.75% by Q3 2025, despite the recent decline in global energy prices.

  Policymakers also pointed to increased geopolitical tensions and a more volatile global financial environment, highlighting the growing risks posed by trade policy uncertainty and international conflicts. The MPC reiterated its data-dependent stance, leaving the door open for future adjustments while underscoring the need to avoid premature easing that could undermine the inflation fight.

• EU:

  In March 2025, the European Central Bank reduced its three key interest rates by 25 basis points, in line with expectations. The deposit facility rate was lowered to 2.50%, the main refinancing rate to 2.65%, and the marginal lending rate to 2.90%. The decision marked the ECB's continued shift toward monetary easing in response to softening growth across the Eurozone.

  However, the March monetary policy meeting account revealed growing caution among policymakers. Officials warned that U.S. tariffs and possible retaliatory trade measures could lead to renewed inflationary pressures, particularly in the near term. Rising government spending, especially on defense and broader fiscal initiatives, was also cited as a potential driver of price growth, complicating the ECB’s efforts to return inflation to target.

  While the rate cut reflects the ECB's desire to support demand, officials emphasized that the move should not be interpreted as a signal for further easing in April. Policymakers acknowledged rising uncertainty over whether policy remains restrictive enough and highlighted the need for flexibility, noting that interest rates had already been reduced meaningfully. The Governing Council left the door open for additional cuts but stressed the importance of data-dependent decision-making going forward.

• JPN:

  The Bank of Japan (BoJ) left its key short-term interest rate unchanged at approximately 0.5% during its March 2025 meeting, maintaining the highest level since 2008 and aligning with market expectations. The decision, which followed the BoJ’s third rate hike in January, was unanimous, reflecting the central bank’s cautious approach as it monitors mounting global economic risks.

  With the U.S. Federal Reserve and other major central banks also adopting a more measured tone, the BoJ emphasized the need to assess the impact of external uncertainties — including rising U.S. tariffs and geopolitical tensions — on Japan’s still-fragile recovery. While the economy has been recovering moderately, policymakers acknowledged lingering weaknesses, particularly in exports and industrial production, which remained largely flat.

  On the domestic front, private consumption has shown resilience, supported by wage increases, though inflationary pressures continue to weigh on household spending. Annual core inflation is currently running between 3.0% and 3.5%, fueled by persistent rises in service prices. The BoJ noted that inflation expectations have edged higher, and it anticipates a gradual increase in the underlying Consumer Price Index (CPI) in the months ahead.

  While the BoJ refrained from signaling an imminent policy shift, the statement underscores its intention to remain flexible, balancing the risks of persistent inflation with the need to support Japan’s uneven economic recovery.

Inflation

• US:

  The annual inflation rate in the United States cooled to 2.8% in February 2025, down from 3.0% in January and coming in below market expectations of 2.9%, offering further evidence that price pressures are gradually subsiding. The decline was led by falling energy costs, which slipped 0.2% year-on-year, reversing January’s 1% increase—the first rise in six months. Within the energy category, gasoline prices fell 3.1% and fuel oil dropped 5.1%, while natural gas prices surged 6%, up from 4.9% previously.

  Inflation also moderated in key categories: shelter inflation slowed to 4.2% from 4.4%, used cars and trucks dropped to 0.8% from 1%, and transportation services eased to 6% from 8%. Prices for new vehicles continued to fall, down 0.3% year-on-year. However, food inflation ticked higher to 2.6%, slightly above January’s 2.5%.

  On a monthly basis, headline CPI rose by 0.2%, down from 0.5% in January, which had marked the fastest pace since August 2023. The result was also below consensus expectations of 0.3%.

  Meanwhile, core inflation—which excludes volatile food and energy prices—slowed to 3.1% year-on-year, the lowest reading since April 2021, down from 3.3% in January and below the anticipated 3.2%. Monthly core CPI also came in softer, rising 0.2%, down from 0.4% and below the forecast of 0.3%.

  The latest data reinforces the case for the Federal Reserve to consider rate cuts later this year, though policymakers are likely to remain cautious amid ongoing wage growth and geopolitical uncertainty.

• UK:

  The annual inflation rate in the UK eased to 2.8% in February 2025, down from 3.0% in January, and slightly below market expectations of 2.9%, though in line with the Bank of England’s own forecast. The latest figures reinforce the view that price pressures are gradually subsiding, providing support for the central bank’s cautious stance on future interest rate decisions.

  The largest drag on inflation came from a surprise drop in clothing prices, which declined 0.6% year-on-year, marking the first fall in the category since October 2021. The decline was led by lower prices in women’s and children’s garments.

  Inflation also moderated in recreation and culture (3.4% vs. 3.8%), notably in live music and recording media, and in housing and utilities (1.9% vs. 2.1%), including a softening in actual rents for housing (7.4% vs. 7.8%).

  However, some components showed upward pressure. Food inflation remained steady at 3.3%, while prices rose slightly faster in transport (1.8% vs. 1.7%) and restaurants and hotels (3.4% vs. 3.3%). Meanwhile, services inflation held firm at a robust 5.0%, underscoring underlying price persistence in the economy.

  The core inflation rate, which excludes food and energy, also moderated, falling to 3.5% from 3.7%, further supporting the disinflation narrative. On a monthly basis, CPI increased by 0.4%, rebounding from a 0.1% decline in January, but still falling short of the 0.5% market consensus.

  These figures suggest inflation is on a clearer downward trajectory, potentially strengthening the case for monetary easing later this year—particularly if growth and labor market indicators continue to soften.

• EU:

  Annual inflation in the Euro Area eased to 2.2% in March 2025, marking the lowest reading since November 2024 and coming in just below market expectations of 2.3%, according to a preliminary estimate by Eurostat. The decline reinforces the broader disinflationary trend across the bloc, offering the European Central Bank (ECB) more flexibility in its monetary policy outlook.

  Services inflation, a key driver of underlying price pressures, decelerated to a 33-month low of 3.4%, down from 3.7% in February. Meanwhile, energy prices declined by 0.7%, reversing the slight increase seen the previous month.

  Elsewhere, inflation for non-energy industrial goods and processed food, alcohol, and tobacco remained unchanged at 0.6% and 2.6%, respectively. However, unprocessed food prices surged by 4.1%, up from 3.0% in February, partially offsetting the broader easing trend.

  Core inflation, which strips out the more volatile food and energy components, dropped to 2.4%, undershooting forecasts of 2.5% and marking its lowest level since January 2022—a significant milestone for the ECB’s policy calibration.

  On a monthly basis, consumer prices rose 0.6% in March, following a 0.4% increase in February, largely reflecting seasonal adjustments and food-related cost pressures.

  These figures suggest that while headline inflation continues to move toward the ECB’s 2% target, price stickiness in services and food remains an area of concern. However, the moderation in core inflation provides a more compelling case for rate cuts later in the year, especially amid mounting concerns about sluggish economic growth across the region.

• JPN:

  Japan’s annual inflation rate eased to 3.7% in February 2025, down from a two-year high of 4.0% in January, as government subsidies helped temper energy costs. The most significant moderation came from electricity prices, which slowed to a 9.0% annual increase from 18.0% in the prior month, while gas prices rose by 3.4%, compared to 6.8% previously.

  Food inflation also showed signs of easing, rising 7.6% from 7.8%, following a 15-month high in January. Price pressures softened across other key categories, including healthcare (1.7% vs. 1.8%), recreation (2.1% vs. 2.6%), and miscellaneous items (1.1% vs. 1.4%), while education costs continued to decline.

  Conversely, inflation held steady for housing (0.8%) and clothing (2.8%), and accelerated for transport (2.4% vs. 2.0%) and furniture and household items (4.0% vs. 3.4%). The communications sector saw a slight rebound, with prices rising 0.1% after a 0.3% decline in January.

  Core inflation, which excludes fresh food, dipped to 3.0%, down from January’s 19-month peak of 3.2%, though still above expectations of 2.9%. On a monthly basis, the consumer price index fell 0.1%, the first decline since September 2024, following a 0.5% gain the previous month.

  The data offers some relief for policymakers at the Bank of Japan, suggesting that inflationary pressures may be gradually easing, albeit from elevated levels, even as core prices remain above target. The figures support the BoJ’s cautious approach to further rate hikes amid an uncertain global outlook and a still-fragile domestic recovery.

Equity market

• US:

  U.S. stocks fell sharply last week as escalating trade tensions between the U.S. and China rattled investors. The S&P 500 dropped 2.7%, the Dow plunged 970 points, and the Nasdaq slid 3.1%, reaching their lowest levels since August. The sell-off followed President Trump’s announcement of a 10% blanket tariff on all U.S. imports, with steeper duties for over 60 countries. China retaliated with a 34% tariff on American goods, intensifying fears of a global trade war.

  Tech and industrial stocks bore the brunt, with Apple, Nvidia, and Caterpillar among the biggest decliners. Despite a strong U.S. jobs report, concerns over recession dominated sentiment. Investors increased bets on Fed rate cuts, pushing 10-year Treasury yields below 3.90%. Meanwhile, fund outflows and surging volatility signal growing anxiety.

  Wall Street strategists are now revising down equity targets, warning that unless trade tensions ease, the economic fallout could deepen.

• UK:

While UK equities outperformed European peers amid the global market rout, losses were still significant. The FTSE 100 plunged 3.5% on Friday, its steepest one-day drop since March 2023, closing at its lowest level since December. Though the UK was spared the harshest U.S. tariffs, China’s 34% retaliatory tariff on U.S. goods added to global risk aversion.

Banking stocks led declines, with Barclays, NatWest, and HSBC falling sharply. Miners and oil giants also sold off on fears of a global slowdown and weakening commodity prices. BP fell 5% and announced Chairman Helge Lund’s resignation, alongside a strategic pivot back to fossil fuels. For the week, the FTSE 100 fell 5.7%, reflecting broader concerns over trade war fallout and slowing global growth.

• EU:

European equities saw their steepest sell-off since March 2022 as trade tensions intensified. The STOXX 50 plunged 5% to a four-month low, while the STOXX 600 fell 4.9%, marking its lowest level since August. The declines followed China’s announcement of a 34% tariff on all U.S. goods, effective April 10, in response to the U.S.'s sweeping protectionist measures.

Banking stocks were hit hardest, with double-digit losses for Deutsche Bank (-10.7%), Societe Generale (-11.6%), and Santander (-13%). The broader retreat was widespread, with cyclical sectors like miners, industrials, and consumer goods leading declines, though defensives such as utilities and healthcare offered some resilience. The European Commission said it was preparing countermeasures, while President Macron urged a pause on EU investment in the U.S.

The week’s rout highlights growing investor concern that a full-blown trade war could derail the global economic recovery, with sentiment further pressured by volatility across U.S. and Asian markets.

Fixed Income market

• US:

  The yield on the U.S. 10-year Treasury note fell below 4% for the first time since October, hitting an intraday low of 3.97% as investors navigated a landscape marked by strong employment data and intensifying trade tensions. The 16-basis-point drop briefly reflected a flight to safety amid escalating tariff threats and rising geopolitical risk.

  While the March jobs report surprised to the upside with 228,000 new positions—far exceeding expectations—China's announcement of a 34% tariff on all U.S. imports and export controls on rare earth materials cast a long shadow. The retaliatory move followed the Biden administration’s sweeping tariffs and is expected to fuel inflation while dampening global growth.

  In the front end of the yield curve, the 3-year Treasury yield at 3.74% dipped below the 2-year at 3.78%, and the 5-year yield hovered near parity with the 2-year, highlighting a market increasingly skeptical of near-term rate cuts. While traders continue to price in at least four rate reductions in 2025, some strategists, including those at Morgan Stanley, have delayed their expectations for the next Fed move to early 2026, citing potential inflationary pressures from tariffs.

  Overall, the bond market is signaling a stagnation scenario, with investors betting the Federal Reserve will remain on the sidelines until economic deterioration becomes more pronounced.

• UK:

  The UK’s 10-year gilt yield fell to 4.4%, its lowest level since mid-December, as growing fears of a global economic slowdown intensified following the latest escalation in the U.S.-China trade dispute. On Friday, China announced a sweeping 34% tariff on all U.S. goods, effective April 10, in direct retaliation to President Trump’s new 10% tariff on all imports, with higher rates for targeted countries, including a matching 34% duty on Chinese exports. UK goods will also be subject to the blanket 10% U.S. tariff, though analysts suggest Britain may be relatively shielded from the worst of the fallout.

  The escalating tariff war has prompted markets to ramp up expectations for monetary easing from the Bank of England. Traders are now pricing in approximately 70 basis points of rate cuts by year-end, up from 43 basis points just two weeks ago. The probability of a 25 basis point reduction at the BoE’s May meeting has surged to nearly 80%, as investors brace for the broader impact of slowing trade and tightening financial conditions.

• EU:

  Germany’s 10-year Bund yield fell below 2.5%, hitting its lowest level since early March, as global investors sought safety amid escalating trade tensions and mounting concerns over economic growth. The move followed China’s announcement of a sweeping 34% tariff on all U.S. goods, effective April 10, in retaliation to President Trump’s latest tariff measures, which include a 10% levy on all imports and higher duties targeting the EU (20%) and China (34%).

  In Europe, political response has been swift. French President Emmanuel Macron urged domestic companies to suspend investment plans in the U.S., while the European Commission signaled readiness to implement countermeasures. The deteriorating trade environment has fueled expectations for further monetary easing by the European Central Bank, with markets now pricing in a more than 90% probability of a 25 basis point rate cut in April. Forecasts for the ECB’s deposit rate by year-end have shifted down to 1.8%, from a previous estimate of 1.9%, reflecting heightened concerns about prolonged economic drag.

FX

• USD:

  The U.S. dollar extended its sharp decline during the London–New York trading crossover, with the euro soaring as much as 2.7% to $1.1144, on track for its largest single-day gain since late 2015. The Bloomberg Dollar Spot Index fell 1.8%, marking its lowest level since mid-October, and putting the greenback on pace for its second-worst day on a trade-weighted basis since late 2023.

  The selloff comes amid mounting concerns over the U.S. economic outlook and the escalating impact of tariffs on corporate earnings. Citi strategists recommended initiating a long position in the euro, targeting $1.15, as they expect greater earnings pressure on U.S. equities compared to European counterparts. Currency options markets also suggest further downside risk for the dollar in the near term.

• EUR:

  The euro traded near $1.10 on Monday, maintaining its highest level since early October 2024, as the U.S. dollar continued to weaken amid escalating trade war tensions. The move followed China’s announcement of a 34% tariff on all U.S. goods starting April 10, in direct retaliation to President Trump’s sweeping tariff measures. In Europe, French President Emmanuel Macron called on companies to halt U.S. investments, while the European Commission confirmed it is preparing its own countermeasures.

  Trump’s tariff package includes a 10% duty on all imports, with elevated rates for specific countries — notably a 20% levy on European Union goods. In response, investors sharply adjusted their monetary policy expectations. Market pricing now reflects a more than 90% probability of a 25 basis point rate cut from the European Central Bank in April, with the deposit rate expected to decline to 1.8% by year-end, compared to the current 2.5% and previous projections of 1.9%.

• GBP:

  The British pound slipped to a four-week low of 1.29 against the U.S. dollar, reflecting a cautious mood in currency markets amid mounting global trade tensions and shifting interest rate expectations. Over the past month, GBP/USD has declined by 0.27%, trimming some of its earlier gains, though it still remains up 1.77% year-on-year.

  The recent weakness in sterling comes as investors assess the potential impact of U.S. tariffs on the global economy, as well as the Bank of England’s increasingly dovish tone. While the UK may avoid the worst of the tariff fallout thanks to its “special relationship” with the U.S., spillover effects from broader European and global volatility continue to weigh on sentiment.

• JPN:

  The Japanese yen held firm near a six-month high around 146 per dollar on Friday, following a nearly 2% surge in the previous session, as investors sought refuge in safe-haven assets after U.S. President Donald Trump announced sweeping new tariffs. The administration unveiled a 10% baseline tariff on all imports, effective April 5, with steeper duties targeting over 60 countries — including 54% on Chinese goods, 20% on the EU, 24% on Japan, 27% on India, and 46% on Vietnam.

  The announcement rattled global markets, fueling fears of higher inflation and slowing growth, and prompting a widespread risk-off move that boosted demand for assets like the yen and U.S. Treasuries. Domestically, Japanese data showed a smaller-than-expected decline in personal spending for February, hinting at underlying consumer resilience. Meanwhile, the Bank of Japan is expected to continue tightening policy following its recent rate hikes, though ongoing global uncertainty and fragile domestic conditions may influence the pace of future moves.

Commodity

• Crude oil:

  Oil prices plunged this week, leading commodity market declines amid intensifying global trade tensions and signs of oversupply. WTI crude futures dropped over 7% to $62 per barrel, the lowest level since August 2021, following a 6.6% slide the previous day. The sharp decline comes as OPEC+ unexpectedly accelerated production plans, announcing it would increase output by 411,000 barrels per day in May, significantly above the earlier target of 135,000 bpd.

  While oil and refined products are currently exempt from the sweeping U.S. tariffs, the broader market remains on edge as the trade war escalates. China’s decision to impose a 34% tariff on all U.S. goods starting April 10 has further stoked fears of a global economic slowdown, prompting traders to reassess demand expectations. Fuel markets, which are more directly tied to economic activity, have been hit even harder.

  Crude is now on track for a weekly decline of nearly 10%, marking its worst performance in six months, as the dual threat of rising supply and weakening demand rattles energy investors worldwide.

• Gold:

  Gold prices reversed early declines to edge higher above $3,121 per ounce on Friday, nearing record levels once again as investors sought refuge from mounting global trade tensions. The move followed China’s announcement of a 34% tariff on all U.S. imports, a direct response to President Trump’s sweeping reciprocal tariff plan, which has stoked fears of a prolonged trade war, rising inflation, and a potential global slowdown.

  Despite the intensifying tariff standoff, precious metals were notably exempt from Trump’s latest trade measures—adding to gold’s appeal as a safe-haven asset. Inventories at COMEX warehouses have climbed in recent months, reflecting rising demand and growing concern over potential supply chain disruptions.

  Gold is on track to gain about 1% this week, marking its fifth consecutive weekly advance, as market uncertainty continues to drive investors toward traditional stores of value.

Source: CNBC, Bloomberg, FTnews, TradingEconomics and Reuters.

Disclaimer

The content on this website is for general informational purposes only and does not constitute financial advice. No liability is accepted for any loss or damage arising from reliance on the information provided.