Markets are feeling slightly more optimistic ahead of the key April 2nd reciprocal tariff deadline, thanks to comments from President Trump and other White House officials that there could be flexibility with regards to the new measures. This has given some relief to risk assets, with the hope being that certain country and sector exemptions may materialise which lessens the potential economic blow. While we don’t yet know how many countries or industries may be given a reprieve come April 2nd, the prospect of exemptions has lowered the tariff ‘temperature’ by a degree or two. Treading carefully may still be the mantra opted for by financial markets until we see who or what is spared from Trump’s next tariff hit-list.
Reduced tariff fears have enabled the USD to stage a mild rebound from its 2025 lows. The Dollar Index (DXY) has regained the 104 handle, for the time being at least. Stronger US services sector data (released on Tuesday this week) was offset by softer manufacturing figures and Conference Board data which took a dive. This mixed picture of US macro data kept treasury yields and check and has limited the USD’s upside. President Trump and Treasury Secretary Bessent have made no secret of their desire to see lower US yields, and if they do get their wish this would restrict the USD’s upside potential. For now, the DXY is trading around 104.20 (as of Wednesday morning), ahead of support at 103.95 and 103.68, and below resistance at 104.50.
Oil is trading at the higher end of its range for this month, with US crude (WTI) at $69.05 (as of Wednesday morning). The $65-$70 range has been in play for US crude during March, with crude traders dealing with the effects of new sanctions on Iran on one side, and impending OPEC+ production increases (due next month) on the other. Oil’s 4% rise over the past week looks to have coincided with a rebound in US equities as tariff fears have been lowered. The competing forces of sanctions and production increases keep the oil outlook neutral for now. Levels to watch this week include support at $68.54 and resistance at $69.67, which if breached would open the way for a possible run back to $70.
The gold market has been taking a breather following the record prices notched up last week. The rebound by the USD off its yearly lows, combined with stabilisation in risk assets on the prospect of greater tariff flexibility from Trump, has seen safe-haven demand abate. Spot gold trades at $3020 (Wednesday morning), in between support at $2997 and resistance at $3040 and $3053, with any break of the latter level opening the door to new highs. The bullish outlook remains intact for the precious metal, however any sustained rebound in the USD could slow the momentum.
Looking ahead this week, US GDP data (due Thursday) and US Core PCE Price Index figures (due Friday) will be closely watched. Markets are still sensitive to any macro data which could suggest a US recession remains a possibility, as such any downside miss in the GDP data (albeit that the data is backward looking) could increase risk aversion. And while tariffs remain the primary market theme, expectations for US interest rates are never far from the scene, and so the Core PCE data is the next key inflation barometer to watch. The Fed currently still expects that they will cut rates two times in 2025, though any upside surprise in the Core PCE figure could bring the prospect of there being just one rate cut this year back into the equation.
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