USD Rebounds as Growth Fears Ease, Markets Rally, and Tariff Policies Shift

USD Strengthens Amid Easing Growth Concerns and Market Optimism

The US dollar has extended it rebound this week, with the dollar index marking its fourth consecutive day of gains. A combination of rising US Treasury yields and a robust rally in equity markets has fuelled this resurgence. The Nasdaq Composite surged 2.3% yesterday, surpassing the 18,000 marks for the first time since early March, bolstering investor sentiment and reinforcing confidence that the recent market downturn has found a floor.

DXY Chart H1 

A notable driver behind this renewed optimism is the evolving stance of former President Donald Trump on tariffs. His indication that upcoming tariff measures will be more selective potentially offering exemptions to certain countries has tempered fears of widespread economic disruption. However, he maintains that substantial tariff increases will be announced on April 2, with particular focus on pharmaceuticals, autos, and sector-specific policies for semiconductors and lumber. Additionally, a proposed 25% "secondary tariff" on nations purchasing oil from Venezuela has been introduced, though its overall market impact is expected to be limited given Venezuela's relatively small crude export volume.

PMI Data Eases US Slowdown Fears

Further supporting the dollar's momentum, fresh economic data suggests the US economy remains resilient. March's services PMI jumped 3.3 points to 54.3, driving the composite PMI to 53.5 a stark contrast to the 2.9-point decline in the manufacturing sector, which slipped to 49.8. While manufacturing struggles persist, the rebound in services has helped mitigate concerns of a prolonged economic slowdown. Compared to last year’s average PMI of 53.7 when GDP growth reached 2.8% the latest figures suggest underlying economic strength remains intact.

Across the Atlantic, business confidence has also improved, with the eurozone composite PMI edging up to 50.4, its highest level since August, while the UK’s PMI climbed to 52.0. These developments indicate that despite global uncertainties, growth momentum remains steady, providing a boost to higher-beta currencies.

USA PMI 

Emerging Markets Face Pressure, Turkey in Focus

Emerging market currencies have broadly lost ground against the dollar this past week, with the Turkish lira (TRY), Russian rubble (RUB), Hungarian forint (HUF), and Brazilian real (BRL) among the weakest performers. The Indian rupee (INR) has been a notable exception, strengthening 0.9% against the USD, alongside modest gains in the Malaysian ringgit (MYR).

Turkey’s financial markets have been particularly volatile, exacerbated by the political turmoil surrounding Istanbul Mayor Ekrem İmamoğlu, who was arrested on corruption charges just as he was poised to be declared the opposition’s presidential candidate. The move has heightened concerns about political interference and market stability, leading to a rapid depreciation of the lira. The Central Bank of Turkey has responded by raising the overnight lending rate by 200 basis points to 46.00%, aiming to stabilize the currency. Meanwhile, Finance Minister Mehmet Şimşek and CBRT Governor Fatih Karahan are set to address foreign investors to calm market nerves.

Looking ahead, market participants will be closely monitoring upcoming economic releases, including US building permits data and consumer confidence indicators. Additionally, remarks from Federal Reserve officials could provide further insight into the Fed’s stance on inflation and interest rates, which remain crucial to shaping USD direction. While the Fed has signalled its intent to cut rates by 50 basis points this year, expectations for inflationary pressures from tariffs could complicate the policy outlook.

With heightened geopolitical and economic uncertainty on the horizon, investors should remain vigilant as the US dollar continues to assert its strength in the global currency landscape.

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