USD mixed amid ongoing stock market weakness - Scotiabank

Stocks screens are a sea of red as investors register deepening concerns over the impact of US tariffs on the global economy. Are countries rushing to offer the US concessions on trade? So far, it seems only Vietnam and Cambodia have started talks to lift levies. More ominously, China has retaliated and the Eurozone is set to do likewise this week, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD mixed as stock market rout extends

"The president dismissed market volatility over the weekend, as did Treasury Sec. Bessent, suggesting the slide in stocks will not sway policy. But market losses are significant. The S&P 500 lost 9% over Thursday and Friday and futures are down 2.5% this morning; the index is nearing "bear market" territory. Recession risks are rising--Wall St banks are upping their recession probability estimates--and stocks may have further to fall to fully price in that eventuality."

"Swaps are pricing in more likelihood of the Fed easing--even though Fed Chair Powell said there was no need to rush after the stronger than expected US jobs data Friday. Markets are pricing in 50% chance of a May cut (from 30% last week) by the Fed and are starting to price in the risk of a larger than 25bps cut by June. While stocks are very weak, bonds are mixed, with 10Y US Treasury yields up 1bp on the day while Bunds yields are down 5bps."

"FX feels relatively sheltered despite the stock plunge. The core majors are largely holding recent ranges but high beta FX is underperforming today again. The AUD is 0.3% weaker (after falling 5% Friday alone in its biggest 1-day move outside of the GFC period since the exchange rate started to float in the early 1980s). The MXN is down 1.5%. The CHF and JPY are outperforming. It's a quiet day for data releases, ahead of the latest US inflation (CPI, PPI) reports later this week. Stock market developments will remain the primary focus for markets in the short run."