Lexicon Financial Group Weekly Update — April 23, 2025

Apr 25

“Although economists have studied the sensitivity of import and export volumes to changes in the exchange rate, there is still much uncertainty about just how much the dollar must change to bring about any given reduction in our trade deficit.”

— Martin Feldstein, American economist

From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel

Looking Around

Recently, the Canadian dollar has strengthened against the United States (U.S.) dollar. It surged above 72 U.S. cents – in February, it was trading below 68 cents. That’s more than a five per cent rise in a relatively short period of time.

Other major currencies have also rallied against the U.S. dollar as well. Both the euro and the Japanese yen have gained ground against the U.S. dollar since the beginning of the year.

Changes vs U.S. Dollar since April 11, 2025 (%)

*Sources: LSEG Data & Analytics, Capital Economics*

But why? Well, some of this can be traced back to:

The ongoing impact of President Donald Trump’s on and off again tariff policy on U.S. stock and bond markets which has led investors to question the safe-haven status of U.S. investments.
Growing concern that the tariff war will disproportionately hit America’s economic prospects more than the countries that are being targeted by U.S. tariffs.
A fear that the widening of the tariff battle between China and the U.S. could lead to China, the second-largest foreign holder of U.S. Treasuries after Japan, selling U.S. Treasuries which would impact the cost of borrowing for the U.S. (1)

Another factor here is President Trump’s preference for a weaker dollar. He made it clear in his first term that he prefers a weaker dollar because it makes U.S. goods and services more affordable to international buyers. It can all be a bit confusing, since Treasury Secretary Scott Bessent said, in February, that the Trump administration wants a strong dollar but does not want other countries to weaken their currencies in order to manipulate their trade with the U.S. This is like asking a business not to move its facility to a country where wages are lower and regulations are less.

Nevertheless, the U.S. dollar is at its weakest level in three years, but it is not historically weak. The U.S. dollar is still about 40 per cent higher than it was at its Great Recession rock bottom in 2008. (2)

However, economic uncertainty is as much a problem for currencies as it is for stock and bond markets. And there has been quite a lot of economic uncertainty since the beginning of this year.

Central banks and policymakers are constantly trying to manage this… neither too weak nor too strong, but juuuust right and much like the porridge that Goldilocks prefered in the children’s story, Goldilocks and the Three Bears.

It appears that a weaker dollar, combined with tariffs, play a role in President Trump’s strategy to bring manufacturing back to the United States. Both weakness in the dollar and tariffs make importing foreign goods more expensive, encouraging people to shop at home.

But the global economy isn’t that straightforward. A weaker dollar may make products originating in the United States cheaper to import into other countries, were it not for the retaliatory tariffs that more than a few countries have placed on U.S. goods. That’s not to say that these two significant concepts cancel each other out, we just need to be aware that they impact different industries in different ways.

Read and Watch

Want deeper insight into topics in your Weekly Update? Then, read and/or right click:

Trump was warned of empty shelves and financial turmoil from tariffs and firing Powell. His U-turn pushed stocks higher

ECB's Lagarde: U.S. tariffs could have a disinflationary impact in Europe

Trump’s Trade War With China Puts Japan in a Tight Spot

China Girds for Economic Stress of Trump’s Tariffs

Raymond James Markets & Investing: Tariffs, policy uncertainty weighs on economic, investing outlooks - CIO Larry Adam, April 21, 2025

Raymond James Estate & Giving: The dual benefits of non-cash donations

Looking Back

Global markets ended last week’s holiday-shortened trading week mixed. The S&P/TSX Composite Index extended its recent winning streak last Thursday, as oil prices climbed and recent volatility in financial markets lost some momentum. Wall Street stocks ended mixed, as investors weighed progress in U.S. trade negotiations with Japan against concerns about the interest rate outlook.

The Toronto market’s energy sector rose 2.2 per cent as the price of oil settled 3.5 per cent higher at $64.68 a barrel. Oil was supported by hopes for a trade deal between the United States and the European Union and new U.S. sanctions to curb Iranian oil exports. Interest rate-sensitive sectors like utilities and real estate posted gains last week, with the Bank of Canada (BoC) pausing its rate-cutting campaign last Wednesday. However, there are expectations that the BoC will resume cutting interest rate in the coming months. (3)

Major stock indexes in the U.S. finished down for the Easter holiday-shortened week. The information technology sector was the major decliner last week, thanks in part to news that the U.S. government would add new restrictions on exports of chips to China in a further escalation of the ongoing trade war between the world’s two largest economies.

Comments by Federal Reserve (Fed) Chair Jerome Powell that the Fed is well positioned to wait for greater clarity before it considers any adjustments to monetary policy was interpreted by some as a potential ruling out of any interest rate cuts in the near term. This helped drive gains in the Treasury market where intermediate-term Treasury yields (interest) saw the most notable decreases, followed by long- and short-term yields.On top of this, policy uncertainty is having a negative impact on U.S. homebuilders and making it difficult for them to accurately price homes and make critical business decisions. This uncertainty appeared to be reflected in last Thursday’s housing starts data, which indicated that construction of new homes decreased by more than 11 per cent in March to an annualized rate of 1.32 million, which was short of consensus estimates for 1.42 million.

The pan-European STOXX Europe 600 Index and other major European stock indexes ended last week higher, which offset some of April’s sharp losses. Investor sentiment was bolstered by President Trump’s decision to delay imposing higher tariffs and the European Central Bank (ECB) signaling that more interest rate cuts are coming, after its latest cut of 2.25 per cent.

Major stock markets ended last week up. Investor sentiment was boosted during the week by tentative signs of progress in ongoing bilateral trade negotiations between the U.S. and Japan. The yen strengthened against the U.S. dollar. Despite this, the topic of foreign exchange has not yet been mentioned in the bilateral trade talks between the U.S. and Japan.

The impact of the U.S. tariffs on China will become clearer in the coming months, following the Trump administration’s decision to raise total tariffs on most Chinese goods to 145 per cent. Many global banks, in recent days, have pushed down their 2025 economic growth forecasts for China, over doubts that it can meet its official GDP target of around five per cent growth. A meeting by the ruling Communist Party’s Politburo at the end of April is expected to offer more insight into officials’ thinking regarding the size and timing of any economic stimulus. (4)

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.