Written by the Market Insights Team
Fed’s independence at stake again
George Vessey – Lead FX & Macro Strategist
The US dollar index has tumbled almost 10% year-to-date – facing headwinds from US growth underperformance, momentum sellers and capital outflow. The sell-America trade gathered momentum on Monday on growing concerns over President Donald Trump’s threats to fire Federal Reserve Chairman Jerome Powell.
Trump’s repeated criticism of Powell for not cutting interest rates has rattled Wall Street, with the S&P 500 Index dropping over 3% yesterday, in a taste of how the market would respond to a successful attempt to drag Powell out of his job before his term end next May. The US administration’s actions continue to amplify economic uncertainty, which is already at record high levels, creating a challenging environment for markets and policymakers alike. This heightened unpredictability is reshaping investor sentiment and influencing global financial dynamics.
Trump’s remarks have intensified fears about the independence of the US central bank, undermining confidence in the dollar’s safe-haven status. The blurred lines between monetary policy and politics are unsettling markets, driving liquidation of US assets. Until these uncertainties ease, pressure on US equities, bonds, and the dollar is likely to persist. indeed, the US dollar continued its slide in thin post-holiday trading, hovering near a 3-year low, while Treasuries showed mixed performance, shorter maturities rallied, and the long-end fell. Safe-haven assets like gold, the euro, yen, and Swiss franc gained traction as investors sought alternatives amid heightened political and market volatility.
Euro at 2021 highs
George Vessey – Lead FX & Macro Strategist
The euro extended its rally on Monday to hit its highest level since November 2021 versus the US dollar – above our short-term upside target of $1.15. Investors are increasingly questioning the dollar’s dominance in the global financial system whilst turning to the common currency as an alternative.
EUR/USD has soared 13% since February, marking one of the fastest and largest euro advances in the past five years and in the top 5% of its best starts to a year on a record. Despite the remarkable rally already, further gains may still be on the horizon. If the common currency replicates the dramatic turnaround seen in 2023, EUR/USD could climb closer to $1.20. Interestingly, this surge comes as the European Central Bank shifts from aggressive rate hikes two years ago to easing policies today. While some indicators suggest the euro may be overextended, the ongoing global trade war could limit any significant pullbacks, supporting continued euro strength.
On the agenda this week, European officials are convening in Washington to address what many are calling the worst global trade crisis in a century. Tariffs are set to dominate discussions at the spring meetings of the International Monetary Fund and World Bank, as well as the G20 gathering of finance ministers and central bankers. The urgency stems from US threats to withdraw from the very multilateral institutions it helped establish, raising concerns about the stability of the global financial system.
On the data docket, flash industry PMIs are in the spot light to gauge the health of major economies whilst Germany’s Ifo index – a leading indicator for economic activity – will also be closely monitored.
Sterling’s journey in uncertain times
George Vessey – Lead FX & Macro Strategist
The British Pound is on track to rise for eleven days on the bounce against the US dollar. This would be the longest stint without a daily decline on record. GBP/USD is above $1.34 now – its highest level in seven months. The pair is up 7% year-to-date, with gains driven largely by US dollar weakness as opposed to sterling strength as concerns over President Trump’s trade policies and their potential impact on the US economy continue to weigh on US assets.
Even lower-than-expected UK inflation data last week failed to hold back sterling’s rise, with headline CPI easing to 2.6% y/y and services inflation dropping to 4.7%. These figures have alleviated pressure on the Bank of England (BoE), prompting traders to slightly increase rate cut expectations with markets now anticipating 86 basis points of easing by year-end. The softer inflation data may grant the BoE more flexibility to support economic growth in the face of global trade uncertainty and rising household costs.
The outlook for further gains in GBP/USD remains strong, driven by Sterling’s alignment with the robust performance expected across the European FX complex this year. Additionally, the UK economy’s comparatively lower exposure to the negative impacts of US tariffs supports the pound’s resilience in the face of global trade shocks.
However, domestic challenges temper this optimism. Despite sterling’s strength against the dollar, these risks reduce the likelihood of sustained outperformance against other European currencies, such as the euro – hence GBP/EUR lingering around the €1.16 handle – down over 3% in 2025. Overall, the balance of external support and internal pressures shapes a cautious yet promising narrative for GBP/USD, while limiting broader sterling upside – particularly against the common currency.
Dollar index down 2%, near 3-year lows
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 21-25
All times are in BST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.