Written by the Market Insights Team
Trump shifts to softer stance on Powell
George Vessey – Lead FX & Macro Strategist
The US dollar’s recent selloff has taken a breather as President Trump ratcheted down his rhetoric toward Federal Reserve (Fed) Chair Powell, saying he doesn’t plan to try to remove the head of the nation’s central bank despite his frustration over interest rates. A potential de-escalation in the US-China trade war also boosted demand for US assets. But is this market-friendly news just a temporary reprieve?
Tumbling stock markets and the dollar falling to 3-year lows on Monday was blamed on concerns about an erosion of the Fed’s independence and a growing unease over the blurred boundaries between monetary policy and political influence. Thus, Trump’s softer tone towards Powell has injected some positive life into risky assets – the S&P500 for example rose over 2.5%, whilst the US dollar index rebounded from 98.00, erasing Monday’s losses. Trump also sounded upbeat about making a trade deal with China, which faces a Trump 2.0 tariff of 145%. This came after US Treasury Secretary Scott Bessent had predicted a de-escalation between the two nations. However, the relief rally across markets may prove short-lived. The latest U-turn from Trump is just another example of the volatile decision making of the US administration, which is keeping policy uncertainty elevated at record levels and investors hesitant to hold US assets.
While erratic conditions are expected to persist in the short term, the long-term outlook suggests sustained pressure on US equities, bonds, and the dollar. As these uncertainties linger, the dollar’s structural weakness could become more pronounced.
It’s PMI day
George Vessey – Lead FX & Macro Strategist
Purchasing Managers’ Index (PMI) data are due from major economies today. They are economic indicators derived from monthly surveys of private sector companies, specifically purchasing managers, and provide a snapshot of the health of the manufacturing, services, and construction sectors. They can also help gauge market sentiment and expectations about the future direction of the economy.
If sentiment weakens further, market stability could unravel. March’s PMIs from the US suggested fairly stable growth, outpacing the Atlanta Fed’s lower forecast, which has been affected by gold import trends. For April, expectations are for a modest composite PMI drop to 52.2 from 53.5. However, a more significant downturn, exacerbated by the instability from US tariff policies, could trigger further stock selloffs.
A weaker dollar is emerging as a hallmark whenever US PMIs fall short relative to developed-market counterparts, as it would be yet more evidence of the fading US exceptionalism narrative that has propped up the world’s reserve currency for the past few years.
Relief rally tempers euro’s momentum
George Vessey – Lead FX & Macro Strategist
EUR/USD appears to be in a brief consolidation phase after its strong rally from February’s lows near parity. After its 13% rally to above $1.15 in just a few months, the pair is trading back under $1.14 today amidst broad-based US dollar demand thanks to Trump’s softer rhetoric on tariffs and Powell. The $1.20 handle could still be a topside target for bullish traders this year, but the pace of the recent rally has fizzled out for the time being.
Momentum indicators remain bullish but overbought for EUR/USD, so we think the euro’s slight weakness is likely a temporary pause in its upward trajectory following its impressive recovery. On the data front, consumer confidence in the Eurozone took a notable hit in April 2025, declining to -16.7, its lowest level since November 2023. This marks a 2.2-point drop from March and fell short of market forecasts of -15, signalling growing concerns among households. Today, we have PMI data, with investors bracing for signs of the potential fallout from Trump’s tariffs. European Central Bank (ECB) President Christine Lagarde yesterday reinforced the ECB’s reliance on economic data, emphasizing its “extreme” importance in the current climate.
A rate cut for the ECB’s June meeting is fully priced in, but for July markets are still undecided. Such dovish ECB expectations will eventually keep a lid on euro strength, despite the break down in correlation between short-term rates and FX over the past month or so.
UK outlook downbeat
George Vessey – Lead FX & Macro Strategist
With the US dollar rebounding amidst Trump’s optimistic trade talk and softer stance on Powell, GBP/USD has recoiled from 7-month highs above $1.34 to trade nearer $1.33 this morning. GBP/EUR is creeping towards €1.17, with sterling benefiting more from improved global risk sentiment. UK flash PMIs today will be the next test as they’ll provide the first tangible indication of sentiment in the private sector in the wake of Trump’s tariffs.
Both services and manufacturing PMI are expected to come in lower than the previous month, though the composite figure is forecast to remain in expansion territory. On a gloomier note, the International Monetary Fund (IMF) has warned the UK economy will be among the hardest hit by the global trade war and inflation is set to climb. The IMF revised its UK growth forecasts downward, citing the impact of Trump’s tariffs. The fund now projects growth of 1.1% in 2025, down from 1.6% previously, and 1.4% in 2026, slightly below the earlier 1.5% estimate. These adjustments reflect the disruptive effects of heightened global trade barriers, weaker private consumption due to elevated energy costs, and rising gilt yields.
Despite a predicted temporary inflation spike, the IMF suggests it leaves room for the Bank of England (BoE) to cut interest rates up to three times this year to support the economy. Such easing could wear away at the pound’s yield appeal and limit the scope of any sterling recovery, though the gap between UK and German real rate differentials will close one way or another.
USD rebounds, euro stalls
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.