Key takeaways
- US trade policy uncertainty has triggered the reappraisal of the USD’s safe-haven brand value.
- We look for USD weakness to extend against the EUR, JPY and CAD…
- …but there may be scope for consolidation elsewhere.
Our tactical view
Table of tactical views where a currency pair is referenced (e.g. USD/JPY):An up (⬆) / down (⬇) / sideways (➡) arrow indicates that the first currency quotedin the pair is expected by HSBC Global Research to appreciate/depreciate/track sideways against the second currency quoted over the coming weeks. For example, an up arrow against EUR/USD means that the EUR is expected to appreciate against the USD over the coming weeks. The arrows under the “current” represent our current views, while those under “previous” represent our views in the last month’s report.
USD
In the previous issue, we incorrectly assumed that the USD would capitalise on higher tariffs via its “safe haven” status. Instead, the chaos of the tariff announcements and frequent changes to the policy subsequently have devalued the USD’s brand. The US Dollar Index (DXY) is now weaker than what its weighted rate differentials imply, reflecting market concerns over US policy and structural issues. The Federal Reserve’s 6-7 May meeting also seems unlikely to change market sentiment, with the likely policy pause mostly priced in. We look for further USD weakness against core G10 currencies (including the JPY, CHF, and EUR), but some scope for USD consolidation elsewhere.
Short-term direction : DXY^
Current
▼ Depreciate
Previous
▲ Appreciate
EUR
The EUR is exhibiting a “risk off” persona, perhaps aided by the timely afterglow of the European fiscal policy U-turn in 1Q25. With the European Central Bank’s (ECB) 25bp cut duly delivered on 17 April, markets may be more attuned to the deteriorating growth outlook in the Eurozone and the prospect of more rate cuts to come. Markets expect c66bp of further ECB easing by end-2025 (Bloomberg, 21 April 2025). The EUR also looks rich relative to rates, but it seems to be enough for the EUR to rally that it is simply “not the USD”. We look for more (but slower) gains in the EUR over the coming weeks. That being said, if the mood music around US trade policy changes, so too will the EUR.
Short-term direction : EUR-USD
Current
▲ Appreciate
Previous
▼ Depreciate
Short-term direction : EUR-GBP
Current
▲ Appreciate
Previous
N/A^
GBP
GBP-USD gains look increasingly overstretched from its rate differentials. It is also worth remembering that the GBP appears to be vulnerable to global financial market stress. At the Bank of England’s (BoE) 8 May meeting, a 25bp cut to 4.25% is fully priced by markets. A renewed focus on growth risks may pre-empt a dovish BoE, possibly dampening GBP upside momentum. As such, the GBP will probably move sideways against the USD but may lose further ground to the EUR in the weeks ahead.
Short-term direction : GBP-USD
Current
▶ Track Sideways
Previous
▼ Depreciate
JPY
We look for USD-JPY to grind lower over the coming few weeks, given likely continued uncertainty about US trade policy. The dominance of risk appetite and the reappraisal of the USD’s brand value should continue to allow the JPY to track stronger than rate differentials imply. Market expectations for the Bank of Japan’s (BoJ) rate hike have been pared back, with a status quo on policy rate at the 1 May meeting almost fully priced. Japan's Finance Minister, Katsunobu Kato, said he aims to discuss currencies with US Treasury Secretary, Scott Bessent, this week (Bloomberg, 22 April 2025). Moves below 140 in USD-JPY could see the pace of decline slow, with other JPY crosses possibly providing a greater drama from here.
Short-term direction : USD-JPY
Current
▼ Depreciate
Previous
▶ Track Sideways
Short-term direction : EUR-JPY
Current
▲ Appreciate
Previous
N/A^
CHF
The safe-haven allure of the CHF has been remarkable since US President Trump unveiled reciprocal tariffs, with both nominal and real exchange rate indices soaring. The next scheduled Swiss National Bank (SNB) meeting is on 19 June, with markets fully pricing in a 25bp cut to bring the policy rate to 0%. Thus, this makes SNB’s FX intervention a more likely near-term tool to prevent inflation moving further away from target, and the CPI report for April will release on 5 May. It is also possible that US trade policy will begin to work against the CHF if high tariffs on pharmaceutical imports are imposed.
Short-term direction : USD-CHF
Current
▶ Track Sideways
Previous
▶ Track Sideways
Short-term direction : EUR-CHF
Current
▲ Appreciate
Previous
N/A^
CAD
USD-CAD may continue its decline over the coming few weeks, as domestic picture will probably be outweighed by US trade policy-centred news flow. Country-specific reciprocal tariffs were paused for 90 days, sparking hope that perhaps Canada may no longer be the frontline target of US trade policy. In Canada, growth and inflation concerns due to trade uncertainty remain at the forefront. For the general election on 28 April, the lack of material policy differences means the impact on the CAD is likely to be limited.
Short-term direction : USD-CAD
Current
▼ Depreciate
Previous
▲ Appreciate
AUD
For the AUD, international issues (such as developments in US-China trade relations and China’s fiscal response) will likely overshadow domestic considerations in the weeks ahead. Risk appetite is also likely to remain fragile. On the domestic front, CPI data (30 April), the Reserve Bank of Australia’s (RBA) 20 May meeting (with a 25bp cut more than fully priced), and the general election on 3 May (with the protagonists all likely to ease fiscal policy) are less likely to be impactful for the AUD. The AUD looks set to consolidate.
Short-term direction : AUD-USD
Current
▶ Track Sideways
Previous
▼ Depreciate
Short-term direction : AUD-NZD
Current
▶ Track Sideways
Previous
N/A^
NZD
The NZD looks stretched relative to rates and the AUD. In New Zealand, Q1 jobs data on 7 May and Q1 retail sales data on 23 May will be closely watched, ahead of the Reserve Bank of New Zealand’s (RBNZ) 28 May meeting (with a 25bp cut more than fully priced by markets). The fundamental risks are skewed towards the downside for NZD, but they may battle with momentum for supremacy which we narrowly favour consolidation over a correction lower.
Short-term direction : NZD-USD
Current
▶ Track Sideways
Previous
▼ Depreciate
Note: ^DXY = US Dollar Index, is an index (or measure) of the value of the USD against major global currencies, including the EUR, JPY, GBP, CAD, SEK and CHF. N/A = Not applicable, as we only provide short-term direction for those currency pairs from this issue. Source: HSBC
FX Data Snapshot
(from close on 23 March to 22 April*)
FX |
Spot |
200 dma |
1-month % change* |
Support |
Resistance |
|---|---|---|---|---|---|
| DXY | 98.44 | 104.59 | -5.43% | 97.69 | 100.00 |
| EUR-USD |
1.1496 | 1.0758 | 6.43% | 1.1200 | 1.1593 |
| EUR-GBP | 0.8593 | 0.8387 | -2.75% | 0.8500 | 0.8700 |
| GBP-USD | 1.3378 | 1.2829 | 3.52% | 1.3000 | 1.3434 |
| USD-JPY |
140.50 | 150.32 | 7.26% | 138.00 | 148.27 |
| EUR-JPY | 161.52 | 161.61 | 0.78% | 160.00 | 164.20 |
| USD-CHF |
0.8106 | 0.8763 | 8.94% | 0.8000 | 0.8400 |
| EUR-CHF | 0.9319 | 0.9425 | 2.34% | 0.9222 | 0.9420 |
| USD-CAD | 1.3820 | 1.4013 | 3.60% | 1.3650 | 1.4000 |
| AUD-USD |
0.6410 | 0.6469 | 1.97% | 0.6200 | 0.6474 |
| AUD-NZD | 1.0676 | 1.0997 | 2.79% | 1.0600 | 1.0910 |
| NZD-USD |
0.6004 | 0.5883 | 4.82% | 0.5831 | 0.6038 |
Note: * as at 16:54 HKT on 22 April 2025
Source: HSBC, Bloomberg
Explanation of terms
Spot: Spot refers to the current market price of a currency pair that is important for immediate transactions.
200 dma: 200-day simple moving average numberrepresents the average price of an index or a currency pair over the past 200 days.
Support (S), Resistance (R):Support and resistance are significant previous lows and highs plus retracement levels, based on historical price patterns of anindex or a currency pair. Support is a historical price level where a downtrend of a currency pair paused due to demand for the first currency quoted in the pair increasing, while resistance is a historical price level where an uptrend of a currency pair reversed amid demand for the second currency quoted in the pair increasing.
HSBC Positioning Indices
Note: Priced as of market close 17 April 2025
Source: HSBC, Bloomberg
The indicators have been devised to track the net position of momentum traders, looking at hundreds of strategies, operating over many different time horizons. It considers time horizons of 5 days up to 260 days. An indicator level of +10 would indicate that the hundreds of different strategies have all lined up and gone long (i.e., buy the first currency quoted in the pair). Similarly, an indicator level of -10 indicates that all strategies are short (i.e., sell the first currency quoted in the pair).
Glossary
Dovish
Dovish refers to an economic outlook which generally supports low interest rates as a means of encouraging growth within the economy.
Hawkish
Hawkish is typically used to describe monetary policy which favours higher interest rates, and tighter monetary controls to keep inflation in check.
MoM / YoY
Month on month / Year on year
PMI
Purchasing Managers Index (PMI) is an indicator of economic health of the manufacturing sector (>50 represents expansion vs. the previous month).
IMM data
International Monetary Market (IMM) is a division of the Chicago Mercantile Exchange (CME) that deals with the trading of currencies and interest rate futures and options and the IMM data is part of the Commitments of Traders (COT) reports published by the U.S. Commodity Futures Trading Commission (CFTC). The IMM data provides a breakdown of each Tuesday’s open futures positions on the IMM. Speculative positions are a trader’s non-commercial positions (i.e. not for hedging purposes).
G10
G10 refers to the most heavily traded, liquid currencies in the world: USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, NOK, and SEK.
Fed / FOMC
Federal Reserve System (US’s Central Bank)/Federal Open Market Committee.
ECB
European Central Bank (Eurozone’sCentral Bank).
BOE
Bank of England (UK’s Central Bank).
BOJ
Bank of Japan (Japan’s Central Bank).
BOC
Bank of Canada (Canada’s Central Bank).
RBA
Reserve Bank of Australia (Australia’s Central Bank).
RBNZ
Reserve Bank of New Zealand (New Zealand’s Central Bank).
SNB
Swiss National Bank (Switzerland’s Central Bank).
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