Dollar under pressure as market volatility persists

Policy reversals from President Trump continue to emerge, with his latest comments seeking to calm nerves over any plans to remove Federal Reserve Chair Jerome Powell. His previous criticisms of the Fed had already unsettled markets. Risk sentiment received a temporary lift following the President’s suggestion that the US might lower tariffs on Chinese goods. However, that optimism was swiftly curbed when Treasury Secretary Bessent clarified that no unilateral offer to reduce tariffs had been made, providing markets with a sobering reminder that a quick resolution to the US-China trade tensions remains elusive.

Mixed messages from the administration are fuelling investor uncertainty, making many wary of holding US assets. The dollar remains under pressure, hovering close to three-year lows. Even after a modest recovery in recent days, the US dollar index has dropped by more than 8% since the beginning of the year—marking its third-worst start on record.

On the economic front, the US Composite PMI declined to 51.2 in April, reflecting the slowest pace of private sector growth in 16 months. The Services PMI slipped to 51.4, while manufacturing posted a surprise rise to 50.7. Business confidence has plunged to levels last seen during the pandemic’s peak, while inflationary pressures, especially on manufactured goods, have surged—driven in part by trade tariffs. The economic outlook remains unclear, and should the softness in data persist, the narrative of US economic strength is likely to fade further, putting additional downward pressure on the already weakened dollar.

Euro’s rally pauses as economic signals turn cautious

The euro has retreated from its recent high of just under $1.16—the strongest level in more than three years—slipping closer to $1.13. Despite this pullback, the single currency continues to serve as a preferred safe haven when investors shy away from the dollar during periods of market stress. While the broader trend remains upward, the rapid ascent suggests the euro may be due for a short-term correction.

April’s PMI readings offered the first snapshot of Eurozone business sentiment since President Trump’s declaration of economic re-opening. The figures painted a mixed picture. The composite reading dipped to 50.1, its lowest since December, with modest improvement in manufacturing to 48.7 offset by a decline in services to 49.7. Both France and Germany posted readings below 50, pointing to shrinking activity in the bloc’s largest economies. On a more dovish note, softer inflation pressures are likely to support the European Central Bank’s recent rate cut and could prompt further stimulus.

For the euro, these data reinforce concerns around weakening inflation and sluggish growth. The economic backdrop remains fragile, and unless incoming figures improve, the currency may come under renewed pressure. Near-term gains could be constrained unless Berlin steps up with fiscal stimulus or collective European spending helps bolster demand. However, looking further ahead, structural shifts in global trade and diminishing demand for US assets may ultimately provide a more supportive environment for the euro.

Sterling slides as economic worries intensify

Sterling managed a fleeting recovery this week, with GBP/EUR briefly reclaiming the €1.17 mark after dipping to its lowest level in 17 months earlier in April. However, momentum remains limited, and the short-term trend continues to point lower as long as the pair trades below its 21-day moving average at €1.1743. Likewise, GBP/USD has followed the euro’s downward path, retreating by more than 1% from recent highs above $1.34.

The euro’s relative strength against the dollar this month has contributed to the downward drift in GBP/EUR. Initially, a broad shift away from the dollar had weighed on the pair, but the euro’s recent reversal has reshaped currency flows. At the same time, new data suggests the UK is feeling the strain of global trade tensions more than the Eurozone, challenging previous assumptions that Britain would prove more resilient.

The latest business surveys paint a troubling picture. UK private sector activity has suffered its sharpest slowdown in over two years, driven in part by a slump in overseas orders as a result of ongoing trade frictions. The UK composite PMI fell to 48.2 in April, well below March’s 51.5 reading and economists’ forecasts of 50.4. The drop below the neutral 50 mark signals a contraction in economic output.

The figures highlight growing concern over the health of the UK economy. When comparing PMI data between the UK and the Eurozone, the widening gap suggests further downside risks for sterling in the months ahead. Unless sentiment or data significantly improve, the pound may continue to underperform against the euro.

Looking ahead

Tariff discussions are anticipated to remain the primary focus moving forward. On the macroeconomic front, all eyes will be on today’s release of US unemployment claims, followed by the UK’s monthly retail sales report tomorrow. Additionally, the IMF-World Bank meetings are garnering attention, with debates surrounding tariffs likely to dominate.

US Dollar finds brief stability as Trump eases criticism of Fed and signals trade progress

The US dollar has found some footing after a period of heavy selling, helped by President Trump’s shift in tone towards Federal Reserve Chair Jerome Powell. Although previously vocal in his criticism, Trump has now indicated he has no intention of removing Powell from his position, easing concerns about political interference in the central bank's independence.

Markets also responded positively to signs of reduced tension between the US and China. Trump’s optimistic remarks about striking a trade deal, coupled with predictions of progress by US Treasury Secretary Scott Bessent, lifted investor sentiment. This renewed confidence spurred a recovery in US assets, with the S&P 500 climbing over 2.5% and the US dollar index bouncing back from the 98.00 mark, reversing losses from earlier in the week.

Earlier declines in the dollar and equity markets were largely driven by fears over the Fed’s autonomy and the increasingly blurred lines between monetary policy and political influence. Trump’s more conciliatory approach, however, appears to have temporarily calmed markets.

Despite this rebound, the relief may prove fleeting. The US administration’s unpredictable policy shifts continue to fuel investor anxiety, sustaining a high level of uncertainty. Although the immediate pressure may have eased, the broader outlook remains clouded. Persistent volatility and lack of clarity may weigh further on US stocks, bonds, and the dollar over time, as underlying structural weaknesses in the greenback become harder to ignore.

Markets on alert as global PMI figures set to test economic confidence

Key economic data from leading global economies are scheduled for release today, with attention focused on the latest Purchasing Managers’ Index (PMI) readings. These indicators, drawn from monthly surveys of private sector purchasing managers, provide insight into the health and direction of manufacturing, services, and construction industries. More than just snapshots of current activity, they also offer a window into business sentiment and broader economic expectations.

A further dip in sentiment could have unsettling effects on market confidence. March’s figures from the US pointed to relatively steady growth, outperforming the Atlanta Federal Reserve’s more subdued projections, which had been influenced in part by shifts in gold imports. Looking to April, analysts expect a modest easing in the composite PMI from 53.5 to around 52.2. However, a sharper downturn—especially in light of ongoing disruption from US trade policies—might spark renewed selling pressure in equity markets.

Each time US PMI data underperform relative to other developed economies, the dollar’s position comes under scrutiny. A weaker reading would reinforce concerns that the era of US economic outperformance may be coming to an end—casting doubt on the strength of the greenback and its role as a global safe haven.

Euro rally pauses as Dollar strength returns and confidence wanes

The EUR/USD exchange rate has entered a period of consolidation, cooling off after an energetic rally from near-parity levels seen in February. Having climbed over 13% in just a few months to breach $1.15, the pair has now slipped back below the $1.14 mark, as a renewed appetite for the US dollar takes hold. This resurgence in dollar demand has been fuelled by President Trump’s more measured stance on tariffs and Federal Reserve Chair Jerome Powell.

While the euro’s advance may have lost steam for now, bullish traders still have their eyes set on the $1.20 level later this year. Technical momentum remains on the side of further gains, although current indicators suggest the currency is in overbought territory—making this pullback appear more like a pause than a reversal.

On the economic front, recent Eurozone data has not offered much comfort. Consumer confidence dropped sharply in April, falling to -16.7—the weakest reading since November 2023 and well below market expectations. This 2.2-point decline highlights rising anxieties among households, potentially undermining broader economic resilience.

Investors are also closely watching today’s PMI data for signs of economic strain in the wake of Trump’s protectionist moves. ECB President Christine Lagarde has reiterated the Bank’s reliance on hard data in guiding its decisions, underscoring the importance of upcoming figures.

Markets are fully pricing in a rate cut from the ECB in June, while the outlook for July remains uncertain. These dovish expectations, even as the usual relationship between short-term interest rates and currency values appears to have frayed, are likely to act as a ceiling on further euro appreciation in the near term.

Sterling retreats from highs as Dollar strengthens and growth concerns mount

The pound has slipped from recent highs against the US dollar, with GBP/USD easing back towards $1.33 after reaching seven-month peaks above $1.34. This shift comes as the greenback regains traction, buoyed by President Trump’s upbeat comments on trade prospects and a more conciliatory tone towards Federal Reserve Chair Jerome Powell. Meanwhile, sterling continues to edge higher against the euro, with GBP/EUR approaching €1.17, supported by improved global risk sentiment.

Today’s UK flash PMI figures will provide the first detailed look at how the private sector is faring following the latest round of US trade actions. While the overall composite measure is still expected to indicate expansion, both manufacturing and services readings are anticipated to come in below last month’s results.

Adding to the cautious outlook, the International Monetary Fund has downgraded its UK growth forecasts, warning that the country may be among the hardest hit by the current global economic turbulence. The IMF now sees UK GDP expanding by just 1.1% in 2025, down from its previous 1.6% forecast, and 1.4% in 2026—reflecting the drag from protectionist policies, reduced household spending due to high energy prices, and increasing yields on government bonds.

Although inflation is expected to tick higher in the short term, the IMF believes this won’t prevent the Bank of England from easing policy. The possibility of up to three rate cuts this year is now on the table as the central bank seeks to shield the economy. While such measures could weigh on the pound’s attractiveness, narrowing interest rate differentials with the eurozone may help to temper further losses.

Euro powers ahead as confidence in US Dollar wavers

The euro has continued its upward momentum, reaching its strongest level against the US dollar since November 2021 and surpassing the short-term target of $1.15. This rally reflects growing doubts among investors about the long-standing dominance of the dollar in global finance, with many increasingly turning to the euro as a compelling alternative.

Since January, the euro has surged by 13% against the dollar—one of the fastest and most significant climbs in the past five years. Despite the scale of the rise so far, there is speculation that the rally still has room to run. Should the euro replicate the kind of rebound seen in 2023, the EUR/USD exchange rate could edge closer to $1.20.

This renewed strength has emerged as the European Central Bank shifts course, moving away from the sharp rate increases of two years ago toward more supportive monetary policies. Although some market indicators suggest the euro may be overstretched, ongoing trade tensions and global economic uncertainty may act as a counterbalance—reducing the likelihood of sharp reversals and helping to maintain the euro’s upward trajectory.

Dollar slumps as political tensions rattle investor confidence

The US dollar has stumbled nearly 10% so far this year, dragged lower by weaker-than-expected economic performance, the unwinding of bullish positions, and a shift of capital away from American markets. Selling pressure intensified on Monday, driven by renewed market unease over President Donald Trump’s threats to remove Federal Reserve Chair Jerome Powell before his term concludes next May.

Trump’s persistent criticism of Powell’s reluctance to cut interest rates has unsettled investors, triggering a sharp 3% drop in the S&P 500. This episode offered a glimpse into the potential market fallout should political efforts succeed in disrupting central bank leadership. With economic uncertainty already hovering at unprecedented highs, the US administration’s confrontational tone is fuelling volatility and complicating decision-making for investors and policymakers alike.

Concerns are growing over the perceived erosion of the Federal Reserve’s independence—a cornerstone of market stability. This blurring of the line between politics and monetary policy is prompting a reassessment of the dollar’s traditional safe-haven role and sparking a sell-off in American assets.

During light post-holiday trading, the dollar extended its losses, approaching levels last seen three years ago. Treasury markets reflected mixed sentiment, with gains in short-term bonds and losses in longer maturities. As confidence in the dollar wanes, investors are increasingly turning to safer options such as gold, the euro, the yen, and the Swiss franc in search of shelter from the rising political storm.

Pound rallies against Dollar, but faces limits elsewhere

The British pound is set to notch up an eleven-day rise against the US dollar—potentially marking its longest uninterrupted climb on record. GBP/USD has now pushed past $1.34, its strongest level in seven months, with gains of 7% year-to-date. Much of this advance reflects the weakening US dollar rather than a surge in confidence towards sterling, as ongoing doubts over President Trump’s trade stance continue to drag on American financial markets.

Surprisingly, even cooling UK inflation figures failed to halt the pound’s momentum. Headline CPI eased to 2.6% annually, while services inflation dropped to 4.7%. These softer readings have reduced pressure on the Bank of England, giving it more breathing room and prompting traders to raise expectations for interest rate reductions—now totalling 86 basis points by year-end. This may offer the central bank greater flexibility to support the economy, particularly given the global backdrop of trade friction and rising living expenses.

Looking ahead, the pound appears well-positioned within the broader European currency group, which is expected to perform strongly this year. The UK’s reduced exposure to the fallout from US tariffs has also helped underpin its relative resilience.

However, challenges closer to home may hold the pound back. Despite recent gains against the dollar, sterling’s performance against other European currencies has been far less convincing. GBP/EUR remains near €1.16, down more than 3% in 2025. In effect, while external conditions have helped push GBP/USD higher, persistent domestic pressures are likely to cap sterling’s strength beyond the dollar, limiting its broader upside for now.

Looking ahead

This week sees European officials travelling to Washington for a series of high-level discussions, where global trade disputes are expected to dominate the agenda. The spring gatherings of the International Monetary Fund and World Bank, along with the G20 meeting of finance ministers and central bank governors, come at a time when international cooperation is under increasing strain.

Rising concern surrounds the United States’ threats to distance itself from key global institutions—bodies it was instrumental in shaping. Such moves are prompting fears over the long-term resilience of the global financial framework and the effectiveness of collective economic decision-making.

On the economic data front, attention will turn to preliminary manufacturing and services PMI readings, providing a snapshot of current activity in leading economies. Germany’s Ifo business climate index will also be closely watched, as it remains a key forward-looking indicator for the eurozone’s economic outlook.

Euro rally extends as ECB poised to cut rates

The euro extended its advance against the US dollar this morning, though it remains in overbought territory based on the daily relative strength index. While the broader outlook continues to favour the euro in the medium term—supported by capital shifting away from the dollar—the European Central Bank (ECB) may look to curb its strength, with a rate cut expected.

EUR/USD has climbed roughly 5% this month, reaching new three-year highs, while EUR/CNY has gained 6% since the ECB’s March meeting, hitting its highest level in a decade. The weakening of the Chinese yuan relative to the euro raises questions about whether it can still provide a competitive edge for Chinese exports to the EU, particularly as US-China trade is expected to decline sharply due to escalating tariffs. President Trump’s tariff strategy is designed to pressure US trading partners into limiting their engagement with China—a policy Europe may consider as it grapples with a growing trade deficit with China since 2020.

The ECB is widely expected to reduce interest rates by 25 basis points today, pointing to heightened growth risks stemming from US trade policy. While rates may be nearing neutral, further reductions remain possible if tariffs intensify. However, the historical link between exchange rates and interest rate differentials has weakened since "liberation day", and the ongoing shift from US to European assets could keep EUR/USD supported around the $1.13 level, even if the ECB adopts a more dovish stance.

Pound holds firm against Dollar but remains weak versus euro

The pound continues to perform well against the US dollar but has lost ground against the euro, following UK inflation figures that came in lower than expected. The data offered temporary relief to the Bank of England (BoE), which is preparing for the potential economic impact of President Trump’s tariff measures.

Sterling has edged towards the $1.33 level against the dollar but remains under pressure in the EUR/GBP pair. As a reserve currency, the pound has been swept up in the broader decline of the dollar. However, the euro is benefitting from greater liquidity and a strong flow of repatriated capital into the Eurozone, bolstered by its substantial trade surplus with the United States.

The pound’s 2.8% monthly gain against the dollar reflects broader dollar weakness rather than underlying strength in sterling. Against its G10 counterparts, the pound has weakened versus six currencies and posted gains against only three. A convincing rally in sterling would typically involve broader strength, particularly against the euro.

So far, however, sterling has underperformed the euro, reflecting elevated volatility similar to that seen during the early stages of the pandemic. Should volatility subside, the pound could begin to recover ground against the single currency, supported by the UK’s relative resilience to tariffs and a stabilisation in domestic demand indicators.