In the week ahead: China’s GDP, BOC and ECB Rate Decisions, U.S. Retail Sales

The U.S. Dollar Index (USDX) experienced further depreciation on Friday, concluding the trading day with losses of approximately 1%, as indicated by data from the iFOREX platform. The greenback fell to an almost two-year low point, driven by diminishing faith in the U.S. economy amid an intensifying trade dispute between the globe's two largest economic powers, evidenced by China's additional increase in tariffs on U.S. goods. U.S. President Donald Trump's decision to raise duties on Chinese imports to an effective 145% further amplified the strained relations between the two nations. China responded in kind on Friday, declaring a new 125% tariff on U.S. imports, a significant increase from the 84% announced on Wednesday.

Confidence among U.S. consumers fell a lot in April. At the same time, their expectations for inflation over the next year jumped to the highest they've been since 1981. This worry seems to be connected to growing concerns about increasing trade problems. The University of Michigan's survey of consumers released on Friday showed that their measure of sentiment dropped to 50.8 in April from 57.0 in March. In addition, consumers now expect prices to rise by 6.7% over the next 12 months, which is the biggest increase since 1981. In March, they expected a 5.0% rise. Looking further ahead, over the next five years, consumers anticipate an average inflation rate of 4.4%, up from 4.1% in March.

Japan's policy chief said Sunday that the weak yen raised household costs, suggesting strengthening it by boosting industrial competitiveness. Ahead of U.S. trade talks, he opposed selling U.S. Treasuries as tariff retaliation, citing Japan's alliance with the U.S. Reflecting these developments, the yen concluded the previous week 2.2% stronger against the dollar, while the Japan 225 index showed a gain of 4.36% on the weekly chart. He linked the weak yen to inflation and stressed strengthening Japanese firms to boost the yen. Upcoming trade talks are expected to include currency policy, with potential U.S. pressure on Japan to support the yen, and scrutiny of the BOJ's slow rate hikes. Tokyo's trade negotiator will meet with the U.S. Treasury Secretary on Thursday.

Despite rising trade tensions and new worries about U.S. consumers and inflation, the US 500 gained on Friday, ending a volatile week higher. The University of Michigan's consumer confidence index fell sharply in March due to concerns about Trump's tariffs impacting personal finances, business conditions, and jobs. Simultaneously, long-term inflation expectations rose above 4%, linked to frequent economic policy changes. Boston Fed President Susan Collins stated the Fed was ready to stabilize markets if needed. The 30-year Treasury yield dipped to 4.836%, easing fears of trade war-driven selling of U.S. debt, even after China raised tariffs on U.S. goods to 125% in retaliation. Beijing also indicated no further response to more U.S. tariffs.

The VIX index, an indicator of fear in the markets, fell after a mid-week increase, suggesting a temporary calming of market panic. First-quarter earnings from JPMorgan Chase, Wells Fargo, and Morgan Stanley beat expectations, though they cautioned on the broader economy. Apple's stock closed 3.83% higher on Friday, recovering from a recent selloff, while Tesla's stock was little changed after halting some China orders due to tariff uncertainty.

Looking ahead to the coming week, key economic indicators and events will draw focus, including China's GDP figures, the Empire State Manufacturing Index, U.S. Core Retail Sales data, the Bank of Canada's Monetary Policy Report and rate announcement, the European Central Bank's interest rate decision, U.K. inflation data, and a speech on the economic outlook by Federal Reserve Chairman Jerome Powell at the Economic Club of Chicago. The upcoming week will also see the release of quarterly earnings reports from several significant market participants, including Goldman Sachs, Citigroup, Bank of America, Louis Vuitton, Abbot Labs, Netflix, Unitedhealth, and L’Oreal.