Written by the Market Insights Team
US data downbeat but not dreadful
The US dollar and yields tracked higher yesterday following a modest ISM manufacturing data beat but still worrying signs of stagflation. Two-year Treasury yields snapped a 5-day decline, bouncing off 3.6%. The US dollar index extended towards its 21-day moving average in an attempt to break the downtrend it’s been in since early February. But its attempt has proved unsuccessful (for now) ahead of today’s key US jobs report and next week’s Federal Reserve (Fed) meeting.
April’s ISM manufacturing index fell to 48.7, a five-month low, signalling continued contraction in the sector. While the headline number wasn’t as weak as feared, subcomponents showed a mixed picture – prices were higher but less than expected, and orders/employment surprised positively, but both remained below 50, reinforcing stagflation concerns. The sector has struggled under widespread tariffs, with optimism fading since President Trump’s election as businesses face weaker sales and rising costs. The broader economy remains resilient for now, but risks loom, especially after Q1 GDP contracted for the first time in three years due to a record surge in imports tied to trade disputes.
Today, all eyes are on the US jobs report for April, which is unlikely to capture the full employment hit from Trump’s tariff announcements. The unemployment rate is expected to hold steady at 4.2%, whilst the non-farm payrolls consensus is 138k, down from 228k in March. A solid jobs report will mean there’s no urgency for the Fed to cut rates next week, or even to signal an impending move. Still, jobs are starting to be cut in the US as evidenced by the latest Challenger report which shows almost 700k jobs have been cut over the last 6 months. So looking ahead, we expect May’s jobs report to be very weak and pressure will build on the Fed to prioritize the full-employment side of its dual mandate, which could be another drag on the dollar over the coming months.
Euro flirting with key support level
George Vessey – Lead FX & Macro Strategist
The euro is heading for its second consecutive weekly decline against the US dollar, pressured by improved global risk sentiment and subdued volatility amid optimism about potential trade deals. EUR/USD has so far bounced off its 21-day moving average though, in a sign that the recent uptrend remains intact for the time being. Flash Eurozone inflation figures are in the spotlight today, with the headline figure expected to inch closer to the ECB’s 2% target.
Meanwhile, the signing of a long-anticipated mineral agreement between Ukraine and the US failed to provide support, indicating that geopolitical headwinds remain a drag on the common currency. The newly established US-Ukraine investment fund, framed by the Trump administration as both a commitment to sovereignty and a way to secure returns on military aid, hasn’t shifted market sentiment, with the euro down 0.5% – its biggest weekly drop since late March. A solid US jobs report today could drag the pair even lower, with $1.12 a potential target if the 21-day moving average is cleared decisively.
Still, EUR/USD remains circa 9% higher year-to-date, well above long-term moving averages, supported by a more-promising euro-area fiscal and structural domestic outlook as well as the structurally weaker dollar case. The deflationary impact of tariffs on the Eurozone opens the door to more ECB rate cuts, which could limit EUR upside, but what appears to be a more favourable cyclical channel might prove more important for the common currency over the long-term.
Four BoE cuts now priced in
George Vessey – Lead FX & Macro Strategist
It’s been a mixed week for the British pound, up most against EUR, NZD and JPY, the latter more than 1% after that dovish Bank of Japan meeting. But GBP/USD is largely unchanged at around $1.33, whilst versus the NOK and AUD, sterling is down on the week.
Global risk sentiment continues to dictate sterling’s price action so with equities extending their recovery to erase all of their post “ Liberation Day” losses, the pound has enjoyed a rebound against its traditional safe haven peers barring the US dollar. The latest positive news relates to China mulling trade talks with the US. Meanwhile, traders are now pricing in four more quarter-point interest rate cuts from the Bank of England (BoE) this year ahead of next week’s meeting. The expectation of policymakers speeding up the pace of interest-rate cuts comes amidst concerns that weakness in the US economy may spread globally. It’s the first time in seven months that markets imply the benchmark rate falling to 3.5%. Such dovish repricing is a negative catalyst for the pound via the yield channel.
In other news, UK politics have also been back in the spotlight this week. Nigel Farage’s Reform UK secured a narrow victory in the Runcorn and Helsby by-election, winning by just six votes after a recount. This marks a significant setback for Prime Minister Keir Starmer, as Labour had previously held the seat with a 14,696-vote majority in the 2024 general election. The result underscores growing concerns within Labour about the rise of the populist right, with Reform making gains across England.
Japanese yen is the biggest loser this week
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 28-May 2
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.