Week Ahead: Trade talks, US CPI, Fed Chair Powell speaks, UK & EU GDP 

Weekly Recap 

US equities ended the week broadly flat as the market digested a trade agreement with the UK alongside the Federal Reserve’s decision to leave interest rates on hold, acknowledging the risks to its dual mandate from US tariffs. However, trade talk progress with China is sending stock indices, such as the Nasdaq 100, sharply higher at the start of the week. 

The US and the UK announced a trade deal on Thursday, marking the first agreement for the US since the new tariffs were announced on April 2. Under the terms of the agreement, the 10% universal tariffs on imports from the UK remain. Cars, steel, and aluminium will benefit. The economic benefit of the deal will likely be limited, given that the UK has a surplus with the US. However, the agreement demonstrates that trade talks are progressing.  

As expected, the Fed left rates unchanged at 4.25%- 4.5%. Federal Reserve Chair Jerome Powell warned of higher inflation and unemployment due to trade tariffs. 

In Europe, the DAX rose to record highs after Friederich Merz was elected Chancellor in a second vote. Meanwhile, the Bank of England cut rates by 25 basis points to 4.25%, although the vote was more hawkish than expected, at 7-2. 

Trade talks 

Trade talks between the US and China took place over the weekend in Switzerland to de-escalate the trade war. The US and China reportedly made substantial progress, with the US lowering tariffs to 30% and China dropping tariffs to 10%. Tensions between the world’s two largest economies reached a high point after Trump increased tariffs on Beijing to 145%. In response, China imposed tariffs on US goods of 125%. Both sides acknowledged that a reduction in tensions and tariffs is necessary.  

Stocks and the USD are surging on the news, while Gold is falling sharply as investors sell out of the safe haven. 

US CPI (Wednesday) 

US inflation cooled for a second straight month in March, with headline CPI easing to 2.4% YoY from 2.8%, marking its lowest level since September 2024. CORE CPI also fell to 2.8% YoY, down from 3.1%, marking its lowest level since March 2021. 

However, President Trump’s tariff plans and global trade uncertainties could stall further disinflation. Federal Reserve Chair Jerome Powell warned about the prospect of higher inflation from Trump’s tariffs. 

The markets are currently pricing in 25 basis points worth of cuts in July and three cuts across the year, as the Fed projects just two cuts. 

Expectations are that CPI will hold 2.4% YoY in April and will rise 0.3% MoM. Hotter than forecast inflation could lift the USD and pull EUR/USD lower.  

Japan GDP (Thursday) 

Japan’s economy is expected to contract 0.2% in Q1 of this year, following 2.2% growth in Q4 2024, marking the first contraction since Q1 2024. The contraction is expected to be driven by a drag from net exports and changes in the trade balance as firms frontloaded shipments ahead of expected US tariffs. This is a further example of how Trump’s trade tariffs created erratic data across the first few quarters of the year. 

Last week, the Bank of Japan left rates unchanged but lowered its growth outlook due to global trade uncertainty. A weak GDP print could reinforce that view, making future rate hikes less likely and pulling JPY lower. 

USD/JPY has recovered from 2025 lows as trade talks developments see some Yen safe haven flows unwind. 

Federal Reserve Jerome Powell speaks (Thursday) 

Federal Reserve Chair Jerome Powell will speak on Thursday, just a week after the Federal Reserve interest rate decision, where the central bank left rates unchanged. Fed chair Jerome Powell warned of the potential for higher inflation and unemployment due to Trump’s trade tariffs. The market will be watching to see if Powell adjusts his stance or commentary in light of the trade talks over the weekend. Trump has continued his criticism of Powell for leaving rates unchanged. His latest attack comes as Trump plays down inflation risk and piles pressure on the central bank to reduce rates. 

A hawkish-sounding Powell could lift USD further as it recovers from its 2025 lows. 

UK GDP (Thursday) 

UK GDP is expected to be relatively positive after the economy expanded by 0.5% in February, which was well above the forecast of 0.1%. This followed a flat January, but should mean solid growth for the quarter. Consensus expectations are for expansion of 0.3%, although the figure could come out closer to 0.6%. The challenges arrive with April’s trade war turmoil and the impact of business tax rises. Still, growth across the year as a whole could prove to be better than expected, given that energy prices are set to fall, as are interest rates, which could offset the headwinds that the economy is facing. 

GBP/USD continues to consolidate around 1.33. Stronger-than-forecast growth could boost GBP/USD. 

 Eurozone GDP (Thursday) 

Q1 GDP surprised with a 0.4% QoQ expansion in the preliminary reading, which is expected to be confirmed this week. Most details haven’t come through, but stronger exports ahead of US import tariffs were likely a key driver. The unusual increase in the first quarter could lead to a weak performance in the following quarters. This may already be evident in the European Commission’s business and consumer surveys, where production expectations and manufacturing fell last month. Furthermore, as long as uncertainty regarding tariffs continues, companies could delay investment and hiring decisions. Households are also likely to postpone spending on big-ticket items, a view which is supported by the sharp decline in consumer confidence in April. 

The ECB is expected to cut rates again in the June meeting to support growth, and as inflation continues to cool. The prospect of further rate cuts and the hoped stability of the German government compared to the White House has boosted the DAX to record highs. 

Earning season 

The US earnings season is starting to slow slightly, with attention on Chinese companies such as JD.com, Alibaba, and Tencent, which could offer insight into the strength of the Chinese consumer and any growth prospects surrounding AI. 

Walmart is also due to release figures on May 15, and could also provide clarity over the health of the US consumer. 

Upbeat earnings could help support the market mood. However, weak guidance could drag on stock indices. The S&P 500 is testing the key 200 SMA resistance at the start of the week. 

Open free account

Trading involves risk.