USD on the Edge while GBP Stays Hot and EUR Plays It Cool
ACY Securities - Jasper Osita
The dollar’s been slipping thanks to trade drama, weak data, and shaken investor confidence. The euro is holding its ground—for now—while the ECB keeps hinting at more rate cuts. And the pound? Still climbing, riding on better-than-expected UK numbers and a central bank that’s in no rush to move. With NFP around the corner, things could get even more interesting.
- The U.S. dollar remains under pressure amid trade tensions, a record trade deficit, and collapsing consumer confidence, with NFP now a crucial risk trigger.
- The euro gains modest ground versus the dollar, supported by ECB’s dovish tone and softening inflation, but risks remain if eurozone growth falters further.
- The British pound outperforms on resilient retail sales and a steady BoE stance, staying bullish while navigating tariff uncertainties and inflation risks.
Dollar Still on Pressure from Trade Tensions and Economic Uncertainty
With trade tensions, economic uncertainty, and losing appeal from investors and trade partners, dollar faces sustained and significant headwinds as US gears up for the upcoming jobs data, particularly, the non-farm payroll report. This slump on dollar is driven by:
- Escalating Trade Tensions: Ongoing U.S.-China trade disputes have unsettled investors, with conflicting signals from officials contributing to market confusion. The dollar fell sharply against safe-haven currencies like the yen and Swiss franc.
- Record Trade Deficit: The U.S. goods trade deficit widened to a record $162 billion in March, prompting major banks to downgrade GDP forecasts, predicting a contraction ranging from -0.8% to -1.75%.
- Plummeting Consumer Confidence: U.S. consumer confidence dropped to its lowest point since May 2020, with the index falling 7.9 points to 86, reflecting widespread economic anxiety.
These factors led the dollar’s worst performance since the beginning of the year.
Dollar is still on a slow pace as it prepares for the upcoming volatile non-farm payroll will bring.
If the 4-Hour FVG zone of 99.130 - 99.449 fails to hold and the immediate support resting at 98.901 breaks, we might see further downside for the greenback. A stronger downside and new lows is on the horizon if the NFP print suggests that the labor market is losing ground.
For market analysis on the dollar, check out this week’s analysis:
EUR: Gains Against USD Amid ECB's Dovish Signals
The euro has appreciated against the dollar but remains under pressure versus the pound.
ECB's Dovish Outlook Amid Trade Tensions
ECB policymakers, including Olli Rehn, have indicated that rates may be lowered below the neutral level if economic conditions worsen, particularly due to the impact of U.S. tariffs. Rehn emphasized the importance of keeping policy options open, including larger-than-usual rate cuts, in response to changing conditions.
Additionally, ECB board member Piero Cipollone warned that a global trade war could have recessionary effects and potentially lower both economic growth and inflation in the euro area. He emphasized that rising trade policy uncertainty might reduce eurozone business investment by 1.1% and GDP growth by 0.2 percentage points in 2025–26.
Inflation Trends and Monetary Policy Implications
The ECB's recent rate cuts are a response to these inflation trends and the broader economic outlook. Despite the easing of the tariff deadlock, ECB officials expect further interest rate cuts, as they anticipate that even if the U.S. administration softens its stance on tariffs, the lasting impact on the economy will persist. A 25 basis point rate cut is expected in June, with the deposit rate potentially falling to at least 1.5%.
Daily
While the price action on Euro is still in an uptrend, we still need to be cautious as we are seeing a slow price action despite dollar experiencing significant headwinds.
Based on the daily, we are trading near the 50% of the current range, signaling that price is yet to unveil its intent in the coming days.
4-Hour
With the daily experiencing a slowdown, 4-hour, on the other hand is showing bullish developments. Though, pound is still not out of the woods as we still need a sustained upside move.
Potential Scenarios
- Bullish: Price forms a Higher Low (HL) on 1H or 4H, getting support at the 1.14 level. If we get a sustained support, target is at 1.15733 level.
- Bearish: If price fails to hold the support level, breaks the 1.13 level, we might see continued weakness on Euro.
GBP: Sterling Strengthens on Economic Resilience
As the dollar continues to get pounded by global tensions, the British pound has shown remarkable strength, nearing a 38-month high against the U.S. dollar.
Retail Sales Beat Expectations
UK retail sales rose by 0.4% in March, surpassing forecasts of a 0.4% decline, indicating resilient consumer spending.
BoE's Cautious Stance
Markets anticipate the BoE may be slower to cut interest rates compared to other central banks, with derivatives markets forecasting about 85 basis points of rate cuts in 2025.
Factors Influencing the BoE's Cautious Stance
- Persistent Inflation Pressures: Despite progress in reducing inflation, the Consumer Price Index (CPI) remains above the BoE's 2% target. Inflation stood at 2.5% in Q4 2024 and is projected to rise to 3.7% in Q3 2025 due to factors like elevated energy costs and regulated price changes.
- Global Trade Uncertainties: The imposition of new tariffs by the U.S., including a 10% levy on UK exports, has introduced additional economic uncertainties. BoE Governor Andrew Bailey emphasized the need to "take seriously" the potential impact of these tariffs on UK economic growth.
- Divergent Views Within the MPC: While some Monetary Policy Committee (MPC) members advocate for a cautious approach, others suggest a need for more aggressive rate cuts. For instance, MPC member Alan Taylor indicated that the BoE might need to cut rates five or six times over the coming year to support the economy amid signs of weakening growth.
Focus on EU Trade Relations
inance Minister Rachel Reeves emphasized the importance of strengthening business ties with the EU, suggesting it may be more critical than a trade deal with the U.S.
Daily
Pound is still in a clear uptrend. Briefly, price retraced at the 1.32992 - 1.33253 but retracement has been shallow, suggesting strong and sustained order flow behind the bullish move.
The breakout at 1.34239 suggests that potential new highs are incoming.
Potential Scenarios
- Bullish: If price holds the FVG resting at 1.33548 - 1.34092 and breaks the 1.346 level, we could see another bullish continuation
- Bearish: Conversely, if price fails to respect the FVG and pulls back deeper in the previous range, we might see a slowdown.
With the U.S. Non-Farm Payrolls report just around the corner, markets are bracing for another wave of volatility.
Whether you’re riding the pound’s strength, watching euro reactions, or waiting on a dollar bounce — this is a moment to stay sharp. Let the data guide your next move, and remember: sometimes the best trades come after the noise settles.
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