# United States
The US dollar has shown signs of recovery due to two main factors. Firstly, the ongoing debate about reciprocal tariffs adds to the market’s uncertainty. President Trump’s openness to “phenomenal offers” suggests the tariffs might be more of a negotiation strategy. Despite Israel removing all its tariffs on the US, it still faced a 17% levy, highlighting the complexity of the situation. Secondly, position adjustments are likely ahead of the US jobs report. The labor market’s weakness is evident in soft survey data, not in hard data like initial jobless claims. Continuing claims have risen, suggesting a slowdown in employment. Fed Chair Powell’s impending speech on the economy could introduce further volatility, although he’s expected to show restraint in reacting to stock market declines, avoiding the “Fed put” approach. The US dollar has strengthened against all G10 currencies except the Swiss franc. German factory orders have disappointed, while BOJ Governor Ueda acknowledged a challenging global environment. Emerging market currencies are mixed, with Asia-Pacific outperforming Central Europe. The PBOC’s dollar reference rate hit its highest for the year, while equity markets are under pressure, and US index futures warn of a potential gap lower opening. Bonds are seen as a safe haven, with European 10-year yields dropping 6-10 basis points, and US Treasury yields around 3.95%. Gold is behaving more like a risk asset, trading 0.75% lower today but still above yesterday’s low. The May WTI has extended its dramatic sell-off, driven by OPEC+’s decision to increase sales more than expected, coupled with broader growth concerns.
The Dollar Index experienced a significant drop yesterday, reaching a low near 101.25, but managed to settle slightly above 102.00. The drop was sharp, with the index spending most of the European and North American sessions below three standard deviations from the 20-day moving average. The index has seen some recovery and faces technical resistance in the 102.40-50 area. Above this, stronger resistance lies at 102.80-103.00. There are arguments against the notion of the US being exploited when its economic performance is strong. Both the US GDP and household net worth are at record highs. Instead of pursuing growth through bold new initiatives, the US is focusing on an extractive strategy, reminiscent of ancient Rome’s tax collection methods.
Attention is now shifting to the US jobs data. Despite deterioration seen in surveys like the ISM manufacturing and service surveys, weekly jobless claims show little evidence of labor market weakness, with the ADP private sector jobs estimate stronger than expected. There are few expectations of today’s nonfarm payrolls. While nonfarm payrolls rose by 191k in the six months through February, and by 183k through February 2024, Bloomberg’s survey median forecast for March is a 140k increase. A slight uptick in the unemployment rate from 4.0% would not be surprising. There is a strong belief that the labor market will deteriorate later this year. Ahead of today’s employment report and Fed Chair Powell’s speech, the futures market is pricing in over a 90% chance of a Fed cut in June, an increase from the previous week’s estimation of two-thirds.
# Eurozone
The euro saw a spike almost reaching $1.1145 during early North American trading but eventually settled near session lows below $1.1030. It briefly topped $1.1100 but confronted sellers. A combination of disappointing German factory orders and position adjustments before the US jobs report drove the euro below $1.10, triggering stop-loss sales that extended to around $1.0965 initially. The US’s two-year rate premium over Germany narrowed by eight basis points over two days, reaching its narrowest in four weeks.
Although the EMU’s calendar was relatively quiet, its four largest members provided real sector data. Germany’s factory orders for February were flat, contrary to expectations for a rise following January’s revised drop from -7.0% to -5.5%. France reported a 0.7% increase in industrial output for February, marking the first gain since last September, driven by a 1.4% increase in manufacturing production. Spain’s industrial production showed a better-than-expected increase of 0.7% in February, despite a nearly 2.0% cumulative drop over the preceding three months. Italy, potentially one of the hardest-hit by US tariffs, reported a modest 0.1% increase in retail sales for February, leaving a decline of about 0.25% over the year’s first two months.
Meanwhile, funds leaving US equities do not seem to be redirecting towards their European counterparts, as the Stoxx 600 index declined around 9.5% from its record high in early March.
# United Kingdom
Sterling surged to nearly $1.3210 yesterday before encountering profit-taking resistance, causing it to ease slightly through $1.3080 later in the day. Today, it touched $1.3115 before retreating to around $1.2960. Even with a 10% tariff on sterling and a 20% tariff on the EU, the euro surged against sterling, approaching a yearly high of around GBP0.8470, up from approximately GBP0.8320 yesterday. The UK’s construction PMI, after spending most of 2024 above the 50 mark indicating expansion, has been contracting in the first quarter of 2025, landing at 46.3 in March, down from 44.6 in February.
# China
The dollar reached a two-month high against the offshore yuan yesterday near CNH7.35 in Asia, before retreating to CNH7.2750 by late in the European session as the US dollar faced broad pressure. It dropped slightly below CNH7.24 today, marking a weekly low. On the contrary, the PBOC set a higher dollar benchmark reference rate at CNY7.1889, matching its highest for the year.
China is expected to release its March reserve figures over the weekend, with additional lending data due next week. The key highlight will be the March CPI and PPI data next Thursday. While deflation in producer prices is expected to continue at around -2.3% compared to -2.2%, the deflation marked by negative consumer prices of -0.7% appears to have been a statistical anomaly, the first negative occurrence since January 2024. It is projected to show no change year-over-year in February, compared with 0.7% in the same month of 2024.
Furthermore, Fitch has downgraded China’s sovereign rating from A+ to A, matching the assessment by DBRS. The decision took place before the newly announced reciprocal tariffs, with concerns cited over weaker public finances influenced by debt-driven spending and the impact of US tariffs.
# Japan
The yield on US 10-year Treasuries briefly dipped below 4% for the first time since mid-October, catalyzed by falling stock markets. The dollar weakened significantly from a high point near JPY149.30 to JPY145.20. Settled nearly three standard deviations below the 20-day moving average of around JPY145.40, it remained above JPY145.30 and rebounded to JPY146.55, re-entering its Bollinger Band. Amid such volatility, a favorable reaction to US jobs data could see a move to the JPY147.00-20 range.
Both the yen and the Swiss franc appreciated over 2% yesterday. Their shared characteristics include low interest rates and a status as traditional funding currencies, often borrowed to invest in higher-yielding assets. When these riskier assets decline, these funding currencies tend to be repurchased. Additionally, some market participants believe that their robust international investment positions offer a dependable safety net, enabling repatriation of assets as a risk-off strategy.
Japan reported a 0.8% year-over-year drop in household spending for February, following a 0.5% decline in February 2024. In GDP terms, consumption grew by 0.1% in the fourth quarter but appears to have remained subdued this quarter, despite low unemployment, rising nominal wages, and government subsidies for energy.
# Canada
The US dollar dropped over 1% against the Canadian dollar, approaching CAD1.4025, a low point not seen since early December. The 200-day moving average is positioned around CAD1.40. Breaking through CAD1.41, the USD hit the 50% retracement level from its rally since the last September low near CAD1.3420. The next retracement level is at 61.8%, around CAD1.3945, but the dollar shows strength before the North American open, stabilizing at CAD1.4055 and rising to nearly CAD1.4170 in European sessions. Initially, resistance lies around CAD1.4175, but given prevailing volatility, a breakthrough could push it to CAD1.4220.
Canada’s March employment report offers outdated data given the shock from US tariffs. Economists fear that tariff impacts and supply-chain disruptions could lead Canada into a recession. The risks appear biased to the downside, with any recent economic strength likely seen as an anomaly. The March 2024 unemployment rate stood at 6.10%, falling from a high of 6.9% in November of the previous year. It slightly increased to 6.7% in March from 6.6% in January and February. Full-time employment rose by 15.5k jobs in the first two months of the year and 49k jobs over the same period in 2024. Ahead of the next Bank of Canada meeting on April 16, the swaps market indicates approximately a 55% likelihood of an interest rate cut, up from a 33% chance last month.
# Australia
During yesterday’s turbulent session, the Australian dollar traded within a two-cent range that has characterized its performance over the past few months: $0.6200 to $0.6400. It managed to post its highest settlement since March 19, despite remaining within the trading range. Overnight developments saw the Aussie wipe out yesterday’s gain, nearing the $0.6200 threshold, a level it hasn’t closed beneath since mid-January.
Australia reported a 0.2% increase in household spending for February, reflecting a 3.3% year-over-year rise. January’s data was revised upward to a 0.5% increase from an initially reported 0.4%. By February 2024, spending rose 4.6% year-over-year, with monthly spending averaging a 0.6% increase in Q4 2024, marking the strongest quarterly performance since Q3 2023. The cumulative 0.7% rise in spending for January and February of this year equals the growth seen over the same period in 2024. However, expectations remain strong for a rate cut at the May 20 Reserve Bank of Australia meeting. Futures markets had previously discounted a 70% chance of a quarter-point cut last week, which has now adjusted to a 20% chance for a 50 basis-point move. Moreover, the White House corrected its stance on New Zealand, aligning its reciprocal tariff at 10% with Australia, revising from an initially signaled 20%.
# Mexico
The US dollar fell to nearly a five-month low against the Mexican peso yesterday as the greenback faced widespread weakness. It had previously encountered resistance around MXN20.50 in the preceding sessions and fell to about MXN19.84, close to the Bollinger Band’s lower boundary. Currently, the greenback is showing strength, testing the 20-day moving average in Europe around MXN20.1565. Resistance could appear near MXN20.20.
Mexico’s economic calendar remains light into the weekend. The focal point next week will be March’s CPI, and barring substantial surprises, the central bank is anticipated to proceed with another 50 basis-point rate cut at its forthcoming mid-May meeting.
