Written by the Market Insights Team
US growth signals mixed
George Vessey – Lead FX & Macro Strategist
Further dampening dollar demand towards the end of the week was a batch of US data misses. April retail sales showed that pre-emptive buying ahead of tariffs faded, following March’s spending surge. Meanwhile, subdued PPI suggests that companies are absorbing higher costs, though this may not be sustainable.
April retail sales growth decelerated, with the value of purchases rising just 0.1%, unadjusted for inflation. Seven out of 13 categories saw declines, signaling broad-based weakness as the prior March spending surge faded. Meanwhile, prices paid to US producers unexpectedly declined in April by the most in five years. PPI components imply a modest 0.1% m/m increase for the core PCE deflator, the Fed’s preferred inflation gauge. Portfolio management fees plunged 6.9% m/m, while medical services softened relative to CPI, reinforcing expectations that the Fed could resume rate cuts later in the year. Yet, sharp revisions to the upside from the previous two PPI prints cloud the outlook.
Elsewhere, manufacturing surveys from the Empire State and Philadelphia Fed signaled worsening business conditions but higher new orders, hinting at slight expansion despite pricing pressures. These surveys point to a potential rise in the ISM manufacturing PMI for May, with higher raw material costs projected in the months ahead.
Dollar’s rebound lacks conviction
George Vessey – Lead FX & Macro Strategist
The S&P 500 has jumped 4% this week, erasing its year-to-date losses as the US-China trade truce brings relief. The 90-day tariff rollback signals an end to the worst phase of the trade war, fuelling risk appetite and driving Treasury yields higher as traders exit safe-haven assets. But the US dollar’s rebound has already lost steam, further hindered by fresh speculation that President Donald Trump favours a weaker buck.
Despite the initial dollar rebound, its gains have proved short-lived. Investors remain wary of lingering trade-related economic damage, and without clear evidence of recovery, the incentive to chase the dollar higher remains weak. This is despite short-end yields rising as traders steadily dial back expectations for Federal Reserve rate cuts this year, with less than 50 basis points of easing now priced in. Long-end Treasuries remain vulnerable too as Washington’s fiscal policy shifts toward tax cuts without deficit reduction, adding upward pressure on yields and downward pressure on the dollar.
Meanwhile, following US-South Korea trade talks, speculation is once again mounting that President Trump favours a weaker dollar, potentially pressuring other governments to allow their currencies to appreciate in trade negotiations. Asian currency weakness against the dollar has long been seen as an advantage for regional exporters, a stance the administration has sought to challenge.
The key takeaway for now is while the short-term dollar relief from trade de-escalation is clear, the longer-term risks remain. Markets will closely watch economic data in the coming weeks to gauge whether the damage from prior tensions starts surfacing. Indeed, in the FX options market, 1-year dollar sentiment is now the most bearish in five years, highlighting persistent uncertainty.
Real estate slowdown, little relief for buyers
Kevin Ford – FX & Macro Strategist
Canada’s housing market remains under pressure, with existing home sales slipping 0.1% in April, according to the Canadian Real Estate Association. Prices are also losing ground according to the MLS benchmark, which declined 1.2% month-over-month, while the national average home price dropped 3.9% compared to last year.
Toronto saw a slight uptick in monthly home sales, rising 1.8%, but sales are still down 21.3% year-over-year, with the average price dipping 4.2%. Vancouver faced a steeper decline, with sales falling 3.3% from March and 23.4% year-over-year, while prices slid another 6.6%.
Housing inventory has climbed to its highest level since the pandemic, as sellers wait for demand to rebound. However, ongoing economic uncertainty and a weakening job market raise the risk of even more listings, potentially putting further downward pressure on prices.
Still, some signs point to a possible turnaround, lower interest rates and improving affordability could provide much-needed support in select markets. At the end of April, Canada had 5.1 months of available inventory, matching the long-term average. A seller’s market typically holds below 3.6 months of supply, while a buyer’s market extends beyond 6.4 months, meaning buyers are awaiting for better conditions while market slowly quiets and uncertainty lingers.
In the FX market, after opening the week at 1.392 and testing key support at 1.389, the Canadian dollar’s upside moves have met resistance near the 200-day SMA at 1.401. This selling pressure was evident again in sharp corrections throughout the week, bringing the pair back to its 1-year average at 1.394. The widening spread between US and Canadian short-term yields has also added pressure on the CAD, which is likely to maintain 1.39 as a key support level in the coming weeks.
Looking ahead, the weekly chart suggests price movements next week could remain contained between the 60-week SMA at 1.392 and the 40-week SMA at 1.403. Also, neutral positioning in the FX options market, reflected in one-month risk reversals, suggests low-volatility and range-bound outlook in the near term. However, if bearish sentiment around the U.S. dollar returns, the CAD may test support levels below 1.389.
Euro consolidates around $1.12
George Vessey – Lead FX & Macro Strategist
Although EUR/USD remains largely at the mercy of US risk sentiment, we had some notable data out of Europe this week, which has arguably helped the pair recover ground back above the $1.12 handle, though still down four weeks in a row and 1% month-to-date.
Eurozone industrial production grew 4.7% in Q1, the strongest outside of the post-lockdown rebound in 2020, boosting 0.4% GDP growth. A key driver was US frontloading of European goods ahead of Trump’s tariffs, particularly in pharmaceuticals, where production rose 23.2% – notably in Ireland, a key hub. However, with Liberation Day tariffs now in effect, demand for Eurozone exports is set to weaken, casting doubt on whether this surge is sustainable. The ECB’s dovish stance combined with trade uncertainty may weigh on sentiment, keeping the euro’s upside in check despite recent strong data.
A cautious recovery trend compared to late 2024 could emerge once uncertainties ease and inventories normalize, but don’t expect first-quarter momentum to hold. That said, the euro’s upside hinges largely on dollar weakness, especially with the growing disconnect between price action and underlying fundamentals. Without negative USD catalysts, sustained euro strength remains questionable, particularly as ECB policy remains dovish and trade uncertainties persist.
Third straight half-point cut from Banxico
Kevin Ford – FX & Macro Strategist
Banco de México’s latest rate cut was widely expected, with a unanimous decision to lower the overnight interest rate by 50 basis points to 8.5%. The move comes as the economy narrowly avoided a recession, expanding just 0.2% in the first quarter, while the central bank halved its 2025 GDP forecast to 0.6%.
Inflation accelerated to 3.93% in April, exceeding the 3% target, but policymakers remain focused on guiding inflation toward their goal within a tolerance range of plus or minus one percentage point. Markets viewed the press release as dovish, pricing in Banxico’s terminal rate at 6.25% by the end of 2025. What caught attention was the revised CPI forecast for the second quarter, lifted to 3.9% from 3.5% in the accompanying statement.
Despite carry erosion as rate cuts unfold, the peso has still gained 6.8% against the dollar this year, driven by broad risk-on sentiment supporting rallies in emerging markets and Latin American assets. The Mexican stock exchange has followed suit, climbing 17% year-to-date, as tracked by the S&P/BMV IPC Index.
Tariffs remain a headwind, with President Sheinbaum’s administration working to ease trade tensions, though lingering uncertainty continues to cloud the outlook.
Banxico’s dovish stance had little immediate effect on the peso, though it has rebounded from its weekly low of 19.3 to its five-year average of 19.5. However, momentum beyond 19.3 could face increasing resistance.
Yields drop, Gold retreats, stocks extend weekly gains
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: May 12-16
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.