- Financial markets started the week under pressure with worries about the relationship between US President Donald Trump and Federal Reserve (Fed) Chair Jerome Powell hitting sentiment.
- With Powell cautious on cutting rates because the impact of President Trump’s tariff plan is still uncertain, Trump wrote “Powell’s termination cannot come fast enough!”
- Financial markets fretted that concerns around the independence of the Fed might add to a recent sell-off in US bond markets and long-term yields rose whilst equity markets turned lower.
- On Tuesday, President Trump stepped back from his earlier warning, saying: “I have no intention of firing him.” Financial markets gained with the S&P 500 up 3.0% on the day. These reactions suggest that significant yield rises on the long end will likely prompt mitigating actions to stabilize markets.
- In FX markets, the initial worries sent the US dollar lower, with the USD index striking three-year lows. The greenback later rallied with equities as global risk appetite picked up.
- The dollar saw some solid gains across markets with, most notably, the USD/JPY rebounding from ¥140.00 while EUR/USD turned sharply lower from $1.16 to $1.13.
- In a shorter week due to the Easter holiday, economic data softened moderately, with PMI numbers the main release. In general, services PMI were weaker, with German and US manufacturing PMIs the only highlight.
Global Macro
Twists and U-turns
Inconsistent messaging. The U-turns keep coming as President Trump clarified he had no plans to fire Fed Chair Jerome Powell having rattled markets with multiple attacks against the Fed’s policy making. Risk appetite improved and was supported further after the President suggested the US is considering lower levies for Chinese products. Then, Treasury Secretary Bessent said Trump had not offered to cut tariffs on China on a unilateral basis, as market participants were dealt a reality check on a timely resolution to the US-China trade war.
Easing trade war, rate cut hopes. Cleveland Fed President Beth Hammack came to the rescue though, suggesting the Fed could cut rates as early as June if it has clear evidence of the economy’s direction. And that sentiment was later echoed by Governor Christopher Waller who said he’d support rate cuts if there’s a significant rise in unemployment. And in a notable development, Bloomberg reported that China is considering suspending its 125% tariff on certain US imports, signalling a potential easing in trade tensions.
Volatility remains. Volatility-inducing policy statements just keep rocking investors though. With macroeconomic uncertainty and geopolitical risks still unresolved, volatility across financial markets is likely to remain elevated. That said, optimism is the name of the game for now as S&P 500 index was able to exit correction territory, ending at least 10% above its recent low set in the wake of Trump’s April 2 “liberation day” tariffs.
US Dollar holds. The inconsistent messaging continues to keep investors on edge and reluctant to hold US assets as the dollar continues to hover close to 3-year lows. Despite the attempted recovery over the past few days, the US dollar index is still nursing an 8% fall year-to-date – marking its third worst start to a year on record.
Regional outlooks: US, EZ & UK
First key sentiment gauges since “Liberation Day”
Unusual discrepancies. April’s PMI figures revealed notable declines in the Euro-area but driven predominantly by weakening services activity. The anticipated impact of US tariffs on manufacturing remains unclear, where sentiment hasn’t yet fully shifted. But traditional survey-based data, like PMIs, often lags in reflecting the full impact of major events. As such, the effects of recent tariff tensions and global uncertainties might not yet be fully apparent. Indeed, future output expectations dropped to their lowest levels since late 2022, signaling increased economic uncertainty.
UK is an outlier. Britain’s private sector faced its sharpest downturn in over two years, as Trump’s tariffs led to a significant drop in overseas orders, stoking concerns of a potential recession. The UK’s composite PMI tumbled to 48.2 in April, down from 51.5 in March. This figure not only fell short of economists’ expectations of 50.4 but also dropped below the critical 50 mark, signaling a contraction in economic activity.
US activity growth slows. The US Composite PMI fell to 51.2 in April, marking the slowest private sector growth in 16 months. Services PMI dropped to 51.4, while manufacturing unexpectedly rose to 50.7. Business expectations hit pandemic-era lows, and prices surged sharply, especially for manufactured goods due to tariffs. The outlook for the US economy remains murky, but if data continues to soften, the US exceptionalism narrative will continue fading, which will weigh on the already beleaguered dollar.
Week ahead
Inflation and growth data dominate the week
Inflation data. The upcoming week will see inflation data emerge as the central focus across major economies. In Australia, Q1 CPI figures (Wednesday) are expected to show a quarterly rise of 0.8% QoQ and 2.3% YoY, which could provide insight into the Reserve Bank of Australia’s policy trajectory. Meanwhile, preliminary inflation readings from Germany and France (Wednesday) will offer a closer look at price pressures within the Eurozone, with Eurozone-wide CPI data due Friday. These data points will likely shape expectations around the European Central Bank’s (ECB) next moves.
Additionally, the US will release its Personal Income and Spending (Wednesday) alongside the PCE price index—widely regarded as the Federal Reserve’s preferred measure of inflation. These figures will be closely monitored amidst ongoing speculation about the Fed’s future rate decisions.
Key growth indicators. Growth metrics will also be in focus. The US Q1 GDP preliminary reading (Wednesday) is expected to show annualized growth of 0.4%. The Eurozone will release Q1 GDP estimates as well. This, alongside PMI data from the manufacturing sector in US (Thursday) and across Europe (Friday), will offer further context on the region’s economic momentum.
BoJ in focus. The Bank of Japan (BoJ) will announce its policy decision on Thursday, with the target rate expected to remain unchanged at 0.5%.
Labor market. Labour market data from the US (Friday) will be a key highlight, with nonfarm payrolls expected to rise by 123k in April, a notable slowdown from March’s strong 228k reading. The unemployment rate is forecast to hold steady at 4.2%. These figures will provide insight into the resilience of the US labour market amidst tighter monetary conditions.
FX Views
”Sell America” trade slows (for now)
USD Retraces, but risks abound. The US dollar index has fallen over 8% year-to-date – marking its third worst start to a year on record as the torrent of inconsistent messaging from the Trump administration continues to keep investors’ appetite for US assets at bay. Hence the dollar index recently dropped to a 3-year low despite a simultaneous rise in Treasury yields. There has been a clear skew towards bearish USD sentiment with the options premium paid to hedge against a decline in the US currency over the next year the highest since March 2020. However, this week, “sell America” trade starting unwinding after the Trump administration signalled a softer approach on China and Fed independence. Market participants seem to believe they’ve regained some influence over US policy, fostering optimism. However, this perception is far from assured, leaving uncertainty lingering over the dollar’s longer-term trajectory. The market is increasingly considering de-dollarization, with reduced reserves and disinvestment from heavily weighted US assets. Heightened sensitivity to policy changes and growing skepticism about the dollar’s dominance remain key themes going forward.
EUR Taking a breather. The euro sharply recoiled from over 3-year highs versus the dollar this week. EUR/USD spiked to $1.1573, extending its appreciation from February lows to 14% – marking one of the fastest and largest euro advances in the past five years. Much of the recent surge is largely driven by weakening confidence in the dollar, with little justification from short-term rate dynamics. The euro remains a key recipient for safe-haven flight from USD, but upside momentum has (at last) started to ease. The $1.130 area is crucial as attempts to break below have faced heavy buying interest here. A decisive break could open the door for a bigger leg lower with the 21-day moving average, at $1.1136, another important level to decipher the short-term trend. But despite the potential for an extended pullback, longer term dynamics appear favourable with options traders betting on lasting euro strength, pointing to a structural shift in market dynamics.
GBP Sensitive to ro-ro. Risk on/risk off dominates sterling’s price action. The cautious relief rally in financial markets this week allowed GBP/EUR to reclaim the €1.17. Further improvements in risk sentiment are required to asymmetrically help the pound relative to the euro, which dropped to a 17-month low earlier this month. But uncertainty remains elevated and a downside bias intact as long as GBP/EUR stays below its 21-day moving average at €1.1743. Moreover, the latest PMI data suggest the UK economy is suffering more than the Eurozone, undermining the UK economy’s comparatively lower exposure to the negative impacts of US tariffs. Versus the dollar, the pound climbed for ten days straight; a feat matched only twice before in history. Gains were driven largely by US dollar weakness as opposed to sterling strength though, hence signs of potential de-escalation on tariffs and fading Fed independence risks revived dollar demand and stopped GBP/USD’s ascent. The pair reversed course just above $1.34, a 7-month high, but remains over 4% higher since Liberation Day. Rate differentials suggest the pound is overvalued but options traders are still bullish over the next three months.
CHF Moves versus euro matter more. The franc has surged roughly 7% against the dollar so far this month and is set for the biggest monthly gain since 2015. It has appreciated by over 5% in trade-weighted terms and in real terms, it is close to levels prevailing in early-2024, just before the SNB began its cutting cycle. Ultimately, the Swiss franc’s recent appreciation is a deflationary shock for the SNB. This is due to weak starting inflation dynamics and a relatively high FX pass-through to inflation by G10 standards. A policy response, such as negative rates, may be needed, though FX intervention could be a preferred tool. Still, the franc’s performance relative to the euro remains more critical for inflation given import volumes. With EUR/CHF declining less than 2% this month, the SNB may hold off on action for now, suggesting further potential for franc strength.
CAD Dollar weakness sustains Loonie. The primary driver for the Loonie in the short term will continue to be dollar weakness. The DXY index has taken another hit this week, reaching its lowest level since April 2022. In April alone, the DXY has dropped 5%, while the USD/CAD has gained 3%. Investor sentiment toward the Loonie has shifted significantly, with bearish positions now at their lowest since January 2021. This shift is evident in the one-year USD/CAD risk reversal, which has moved in favor of calls—marking the least bearish close for the Loonie in over two years.
The Loonie continues to tread below its 200-day SMA, which sits at 1.4015, and has established a strong support range at the 1.38 level. The 1.378 mark is the new low for 2025, a trading range last seen when President Trump was elected the 47th President of the United States. After five consecutive weeks of decline from the 1.44 level, the Loonie has found support at the 90-week SMA at 1.3783, while the 60-week SMA has become a strong resistance level at 1.39. Current price movements might be subject to a medium-term rebound, potentially revisiting the upper side of the 1.373-1.40 trading range.
AUD Rebounds despite weak fundamentals. Australia’s April S&P Global flash composite PMI dipped to a two-month low at 51.4, with manufacturing easing to 51.7 and services to 51.4. Business optimism slumped to its lowest since October amid tariff-related uncertainties affecting export orders. Despite these headwinds, domestic demand drove new business growth to its fastest pace in three years, supporting steady hiring activity. The Australian dollar is staging a notable recovery, rallying back toward critical medium-term resistance in the 0.63-0.64 range following its recent slide to 0.5876-0.5921 support. Looking ahead, expect the rally to face significant headwind near the 0.6415 October 2022 pattern trend line. Upcoming CPI, PPI, and retail sales releases will be crucial catalysts for determining directional momentum.
CNY Yuan under pressure as PBoC signals greater flexibility. The international landscape is evolving, with enterprises increasingly open to yuan-denominated settlements as questions emerge about US asset stability. This shift is evidenced by recent Treasury bill selling and growing issuance of yuan-denominated bonds, which reached CNY950 billion by mid-April. Despite these developments, the dollar’s dominance remains intact, though somewhat diminished. According to the South China Morning Post, enterprises are becoming more open to using the yuan in settlement of international payments. USD/CNY’s path of least resistance in the long term appears to be toward 7.50 (See correlation chart), reflecting the People’s Bank of China’s apparent willingness to tolerate managed yuan weakness. In the short term, 7.3511 recent highs will be the next key resistance level. Market participants should closely monitor upcoming Chinese manufacturing PMI, non-manufacturing PMI, and composite PMI releases as key gauges of economic momentum that could impact currency movements.
JPY Weakens 2% from 7-month peak. USD/JPY has strengthened 1% last week, after sharp retest of seven-month low and 140 key psychological level. Technical analysis suggests any closes above 144.02 would indicate a tactical bottom and potentially trigger short-term mean reversion, with rebounds likely to fade in the 146-147 range. On the macro front, Japan’s April au Jibun Bank flash composite PMI returned to growth at 51.1 (from 48.9), driven primarily by services expansion to 52.2 from 50.0. Factory sentiment reached its lowest point since June 2020 amid global economic uncertainty. Key upcoming catalysts for the yen include industrial production figures, retail sales data, the Bank of Japan rate decision, and unemployment statistics, all of which will provide critical insight into JPY’s near-term direction.
MXN Risk rally boosts Mexican Peso. Mexican peso has benefited from recent risk rally in markets and renewed hopes that stiff tariffs against major trading partners might be negotiated away in the next few months. Discussions between President Sheinbaum and President Trump have been ramping up, although no agreement has been reached yet. Sheinbaum’s government has chosen not to impose retaliatory tariffs on the U.S., keeping tensions from escalating further.
A key issue for Sheinbaum—and Mexico’s economy overall—is the auto industry. When the tariffs took effect in early April, automakers like Stellantis NV Motor Corp had to halt some production in Mexico, while others reduced overtime. With the auto sector making up around 30% of Mexico’s exports, these tariffs could deal a significant blow to manufacturing.
At the same time, funds and institutional investors have shifted their stance on the Mexican peso, moving from heavily short positions to a more neutral outlook.
The USD/MXN pair has the 200-day simple moving average (SMA) at 19.95, the 100-day SMA at 20.3438, and the 50-day SMA at 20.2505. The peso is currently trading at its weakest level since October 2024, a level last seen before President Trump’s election as the 47th president of the United States. Year to date, the peso has gained more than 6% against the US dollar.
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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.
