Outlook for the Week of April 14 – 18

The week of April 14–18 will be pivotal for markets, with the ECB expected to cut rates amid trade turmoil, while the Bank of Canada’s decision remains uncertain. Key data from the UK, China, Australia, and New Zealand will shape rate expectations, and U.S. retail sales may influence sentiment.

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Key Points to Watch Out For:

• The ECB is expected to cut rates, but the Bank of Canada may take a breather this round.
• CPI data is also in focus; it will be published in the UK, Canada, New Zealand, and Japan.
• Retail sales are the key indicator in the U.S.
• China’s GDP is expected, as Trump is not letting Beijing off the hook.

The ECB Pauses as Trade Turmoil Worsens

The European Central Bank (ECB) meets on hursday, April 17, to determine its monetary policy stance in a context of growing market instability, largely generated by U.S. President Trump’s aggressive trade agenda. After lowering its deposit rate by 150 basis points to 2.50%, the ECB had indicated a likely pause in April to analyze the effects of its recent easing. However, the economic outlook has deteriorated considerably since the beginning of April following the launch of reciprocal tariffs by the U.S., which affect nearly all major trading partners.

Although it is too early to assess the direct impact on companies, the magnitude of the market sell-off suggests a state of panic among investors. Adding to the complexity is Germany’s broad-based fiscal stimulus, the effectiveness of which in protecting the eurozone from the ripple effects of U.S. tariffs remains uncertain.

With inflationary pressures continuing to ease across the bloc, the ECB is expected to err on the side of caution and deliver an additional 25-basis-point cut at its April meeting. Traders have already priced in two more rate reductions before the end of the year.

Despite the ECB’s dovish trajectory, the euro has remained resilient, supported by the eurozone’s significant trade surplus, which has given the currency some safe-haven appeal. With renewed pressure on the U.S. dollar, the euro has risen above the $1.13 threshold.

Unless ECB President Christine Lagarde strikes a surprisingly dovish tone during her press conference, the euro’s reaction could be muted. The biggest risk could be a less dovish stance than markets anticipate.

Key economic indicators to watch this week include Germany’s ZEW Economic Sentiment Index on Tuesday, April 15, and the final eurozone CPI figure for March on Wednesday, April 16.

Bank of Canada Rate Cut Decision Remains Uncertain

The Bank of Canada (BoC) announces its rate decision a day before the ECB, although it remains unclear whether there will be a cut. The minutes of the March meeting showed that the BoC would have kept rates steady at 3.0% were it not for the trade disruptions caused by U.S. tariffs. Since then, tensions have increased, but markets currently assign only a 40% probability to a 25-basis-point cut.

Canada has obtained a temporary exemption from the 25% tariffs under the USMCA agreement. Even so, the persistent uncertainty about future trading conditions is likely to weigh on economic activity.

To complicate matters, the Bank of Canada has already cut rates by a total of 225 basis points and inflation has begun to pick up. Canada’s retaliatory tariffs on certain U.S. products could further fuel inflation in the coming months.

As a result, investors will be closely watching Tuesday’s CPI data, which could be critical in determining whether the Bank of Canada implements another rate cut. If that happens, the Canadian dollar could experience a moderate pullback against its U.S. counterpart

The Pound Looks to UK CPI and Wage Growth

The pound sterling initially benefited from the weak dollar, but the increasing market volatility and the massive sell-offs in shares have caused the pound to fall since then. In addition to risk-averse sentiment and tariff concerns, rising government bond yields have complicated the UK’s fiscal response, limiting Prime Minister Keir Starmer’s ability to relax policy in the midst of a recession.

However, the main pressure point for the pound is the growing expectation that the Bank of England (BoE) may have to cut rates more aggressively this year. Markets have priced in a 90% chance of a 25-basis-point cut in May, although the next data could change that outlook.

The UK CPI fell more than expected in February, to 2.8% year-on-year, and could fall further in March before rebonding again. The CPI report will be released on Wednesday, April 16, preceded by employment data on Tuesday, April 15, where wage growth will be particularly relevant for shaping the Bank of England’s estimates.

Stronger-than-expected figures could moderate bets on rate cuts and offer some support to the pound.

China’s GDP in the Spotlight as Trade War Intensifies

China will publish its first-quarter GDP figures on Wednesday, April 16, amid intensifying trade tensions with the U.S. The economy expanded 5.4% year-on-year in the fourth quarter of 2024, but growth is expected to have slowed to 5.1% in the first quarter.

March readings for industrial production and retail sales will also be released on the same day. However, the market reaction is likely to be limited, as investors are more focused on how China plans to circumvent the escalating trade complications.

With Chinese exports now subject to tariffs of 125%—and similar tariffs imposed on U.S. products—bilateral trade could be significantly reduced. In response, the Chinese authorities could unveil new stimulus measures alongside the publication of GDP to boost domestic consumption and cushion the impact of trade disruptions.

AUD, NZD and JPY in the Spotlight

The Australian dollar stands to benefit the most from any new Chinese stimulus, especially as speculation mounts around a potential rate cut by the Reserve Bank of Australia at its May 20 meeting. A 25-basis-point cut is already fully priced in, and it is possible that the employment report on Thursday, April 17, will not alter that view considerably.

The New Zealand dollar has also faced volatility since the announcement of U.S. tariffs, with risk-sensitive currencies caught in the cross-currents of stock swings, stimulus hopes, and changing rate expectations.

The focus for the kiwi this week will be the quarterly CPI data on Thursday, April 17. The Reserve Bank of New Zealand recently cut its official interest rate to 3.5%, and markets have priced in almost another 25-basis-point cut for May. A higher CPI reading could dampen these expectations, albeit marginally.

Meanwhile, Japan will publish its March CPI report on Friday, April 18. The Bank of Japan was expected to raise rates twice in 2025, but those odds have since fallen. If inflation holds, the yen could extend its recent gains against the dollar.

Conclusion

In the U.S., the focus this week will be on March retail sales, due for release on Wednesday, April 16. Despite a lighter economic calendar, markets remain consumed by uncertainty linked to trade amid President Trump’s unpredictable policy shifts, even as he backtracks on some measures.

China remains the main focus, and both sides show little willingness to ease tensions. However, strong retail sales figures could lift Wall Street sentiment and ease recession concerns, supporting the dollar.

Retail sales are expected to have risen 1.3% month-on-month in March, up from 0.2% in February. Industrial production data will also be published on Wednesday, April 16.

Other U.S. data on the radar include the Empire State Manufacturing Index on Tuesday, April 15, followed by building permits, housing starts, and the Philadelphia Fed Index on Thursday, April 17.

Most major Western markets will be closed on Friday, April 18, for Easter.