Foreign Exchange Commentary

Summary

• European Union delays April 2 tariffs on American whisky
• Central Banks of U.S., United Kingdom, Switzerland, and Sweden adjusted monetary policy as expected.
• Brazil raised interested rates by 1.00% to 14.25% as expected but indicated a slower pace of interest rate hikes which put downward pressure on the Brazilian real.
• Related to political turmoil in Turkey, the Turkish lira depreciated sharply around 3.5%. In response, the Turkish central bank raised short term interest rates by 2.00% to 42.50%.

U.S. Dollar Holding Steady
After depreciating around 4% earlier this month, the U.S. dollar held steady this week.  A continuing theme is the uncertainty driven mostly by the potential impacts from U.S. led tariffs which can have both economic and political impacts.

Earlier today, Bloomberg news reported that Ireland’s prime minister, Michael Martin, warned that the sector-by-sector tariff approach by the U.S. could create divisions among the European Union member states. Also, the European is delaying its proposed 50% tariff on American whisky until mid-April which were originally set to take effect on April 1. According to a spokesperson for the European Commission, this allows for more talks with U.S. officials considering the 200% tariff threat on all alcoholic products made earlier this month by U.S. President Donald Trump.

Central Bank Adjustments to Interest Rates
This week, several major central banks held meetings to decide on short-term interest rates. While all moves were expected, ‘uncertainty’ was a common theme.

United States – Federal Reserve
On Wednesday, as expected, the Federal Reserve held short-term interest rates steady at 4.25%. The Federal Reserve also adjusted its economic forecasts citing uncertainties stemming from recent tariffs and other policy changes. According to Bloomberg news, Federal Reserve Bank of New York President John William said there’s a high level of uncertainty over how rapid changes to immigration, trade and fiscal policy will alter the economy, but the current stance of monetary policy is appropriate.

United Kingdom – Bank of England (BoE)
On Thursday, the BoE kept its main interest rate steady at 4.5% The Monetary Policy Committee voted 8-1 in favor of this decision with one member advocating for a 0.25% interest rate cut. They also confirmed they still see gradual easing of interest rates as appropriate from here. Barclays Research continues to see the next cut by the BoE coming in May and interest rates moving down to 3.5% by September.

Switzerland – Swiss National Bank (SNB)
On Thursday, the SNB lowered interest rates by 0.25% from 0.50% to 0.25% which was widely anticipated by the market. According to Bloomberg news, Governor Schnabel stated that the rate cut has an expansionary impact and “in that sense, the probability of additional policy easing is naturally lower.” That said, Governor Schnabel did say that the Bank won’t hesitate to use FX interventions if needed, to prevent the disinflationary effects of a strong Swiss franc.

Sweden - Riksbank
On Thursday, the Riksbank kept interest rates unchanged at 2.25%. The central bank noted that despite global turbulence, Sweden’s inflation and economic activity outlook remain broadly stable. They anticipate that short term interest rates rate will remain at current levels for the foreseeable future.

Brazil – Banco Central do Brasil
On Wednesday, as expected, Banco Central do Brasil raised short-term rates by 1.00% from 13.25% to 14.25%. This represents the fifth consecutive interest rate hike and the highest since 2016. They said the decision aims to combat persistent inflationary pressures. Also, they indicate that while further interest rate increases are possible, they may occur at a slower pace, contingent upon evolving economic conditions. Since Wednesday, the Brazilian real has deprecated around 1.75% in reaction to the slower pace of interest rate hikes.