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.
