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.