Written by the Market Insights Team
Price pressures to keep the Fed on hold
Kevin Ford – FX & Macro Strategist
The week kicked off with key U.S. macro data releases, though tariff developments remained in the spotlight. President Trump hinted that new trade deals could be finalized as early as this week, yet simultaneously imposed tariffs on the cinema industry, leaving analysts scrambling to assess their potential impact in the coming weeks.
Meanwhile, the ISM Services PMI surprised to the upside, rising to 51.6 in April from a nine-month low of 50.8 in March, exceeding forecasts of 50.6. New orders and inventories accelerated, reaching 52.3 and 53.4, respectively, while business activity held in expansion territory at 53.7. However, price pressures remain a concern—prices charged, as measured by the ISM Manufacturing PMI Price Index, climbed for the fifth straight month. Despite this, the increase has yet to be reflected in the PPI index.
The U.S. dollar, as measured by the DXY Index, has begun the week flirting with the 100 level, though softness remains the consensus in FX markets. The recent market dynamic, rising treasury yields, declining stocks, and a weaker dollar, continues to challenge traditional correlations. The U.S. stock market’s 9-day rally came to an abrupt halt yesterday as renewed tariff concerns rattled investors. Treasuries remain caught between expectations of a potential Fed easing cycle in the second half of 2025 and the pressure of a rising term premium. Adding to the mix, falling commodity prices are amplifying concerns over global economic growth.
What could derail the optimism in markets? Pharma and semiconductor tariffs remain on the table for the U.S. administration, though they likely won’t be implemented before the 90-day reciprocal tariff pause ends. With the administration looking to secure trade deal wins to boost poll numbers, any immediate action on sectoral tariffs could be delayed, but backing down entirely would risk appearing weak after previous commitments.
Markets will also be watching port traffic closely, as cargo shipments from China to the U.S. are expected to stay low. Additionally, retail reaction to the expiration of the de minimis exemption will be a key focus. The exemption, which allowed duty-free imports of goods under $800, expired on May 2nd, triggering a 145 percent tariff on all products ordered directly from China-based retailers. In 2023, nearly one billion low-cost packages worth over 66 billion dollars entered the U.S., with 67.4 percent coming from China, making the policy shift highly consequential for consumers and businesses alike.
Taiwanese dollar surges as “appreciation by stealth” mooted
The US dollar was weaker across Asia to start the week as a historic sell-off in the USD/TWD pair, causing the Taiwanese dollar to surge higher, led the greenback lower.
The USD/TWD fell 3.7% on Friday – the market’s biggest one-day fall since 1988, according to the Wall Street Journal – and was followed by a 2.4% loss on Monday sending the pair to the lowest level since 2022.
Reuters reported there was no clear catalyst for the fall in the pair but a lack of USD buyers was seen in the market. Notably, Asian markets were quieter on Monday, with holidays in Japan, Hong Kong and South Korea.
The move corresponded with US-Taiwan trade talks and could be a sign the Taiwan government was allowing the TWD to rise – essentially an “appreciation by stealth” move. The Taiwanese central bank rejected the claims saying it was not involved in trade talks and “doesn’t manipulate foreign exchange rates”.
The USD was lower across Asia with the AUD/USD rising to five-month highs while the USD/CNH fell to 11-month lows.
The USD/HKD – managed in a tightly-controlled peg by the Hong Kong Monetary Authority – fell to the lowest level since 2020.
Loonie lags G10 peers in 2025
Kevin Ford – FX & Macro Strategist
USD/CAD had an impressive April but continues to lag behind its G10 peers, making it the worst-performing currency among major economies in 2025. Does this suggest room for further recovery? Much will depend on today’s meeting between President Trump and newly elected Prime Minister Mark Carney, where trade negotiations, including potential progress on the CUSMA/USMCA renegotiation, could shape the trajectory of the Loonie. While less immediately influential for FX markets, Friday’s Canadian labor market data for April will provide additional insights into the country’s economic momentum.
Canada’s macro outlook remains weak, with the latest data confirming a fifth consecutive month of contraction in the private sector. The S&P Global Composite PMI fell to 41.7 in April from 42 in March, marking the steepest decline since June 2020. Both manufacturing and services saw similar slowdowns, while new orders dropped sharply, leading to a fourth consecutive month of job cuts. Future expectations improved slightly but remained historically low. On the price front, input cost inflation eased to a three-month low but stayed elevated, while weakening demand resulted in the first decline in output charges in over four years.
Dovish signals point to BOE’s May rate cut
We anticipate a 25bp rate cut by the Bank of England at its May meeting on Thursday.
Given the relatively dovish remarks made by several Monetary Policy Committee members after the tariff announcements in early April, there is a chance that there will be more dissent from committee members.
Because of the conflicting evidence that has been made public after the March meeting, cautious rate cuts are still necessary.
Despite acknowledging the impact of trade policy uncertainties, we believe that recommendations will not alter.
While an upward revision to the BoE’s Q1 GDP outlook may be followed by downward revisions for coming quarters, a combination of lower energy costs, higher sterling, and a lower starting point for the Bank’s inflation predictions supports downward revisions to the Bank’s CPI profile.
We believe that the risks of more aggressive easing have increased.
GBP/USD have surged and returned more than 6% YTD gains. However, it has recently corrected by 1% from its near seven-month highs of 1.3444 – a potential sign of reversal.
The next key support for GBP/USD lies at the 21-day EMA of 1.3232, followed by 50-day EMA of 1.3055.
U.S. yields higher, Gold recovers
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: May 5 – 9
All times are in ET
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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 quothave 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.
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