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Currencies trade in tight ranges after Trump’s backtracking on Fed

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28 April 2025

Written by
Matthew Ryan

Matthew Ryan is Ebury’s Global Head of Market Strategy, based in London, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

Stocks, US Treasuries and credit all rallied in relief after Trump stated that he had no intention to fire Chair Powell. The dollar failed to do so, however, and ended up not far from where it ended last week.

Y
et again, a fierce market reaction forced Trump to walk back outlandish statements, this time regarding his potential firing of the Federal Reserve chair. This brought a very modest response from the dollar, which dropped to multi-year lows just a few days prior amid thin holiday liquidity. Meanwhile, LatAm currencies continued to shine, buoyed by general USD weakness and the region avoiding the worst of Trump’s proposed tariffs.

So far, all we have to gauge the economic damage wrought by “liberation day” are business surveys and second-tier data points. This week, we get the first critical read on the state of the economy post-tariffs – the US payroll report for April. We will also receive the estimate of first-quarter economic growth from both the US and Eurozone, and a flash inflation reading for April from the latter. All in all, a week heavy with post ”liberation day” economic reports that should drive market trading, though investors will also be keeping an eye on any announcements of potential trade deals by the Trump administration.

GBP

We had a mixed bag of economic data last week out of the UK. March retail sales surprised strongly to the upside, suggesting resilient domestic demand driven by a still strong labour market and wage growth. However, the PMI surveys of business sentiment came out worse than expected, no doubt affected by the “liberation day” market turmoil.

We think that Sterling relative underperformance vs the Euro is not justified by fundamentals, including high interest rates, relative economic insulation from Trump’s tariffs, and prospects for closer integration with the EU, and remain quite constructive on the Pound.

EUR

The April PMI survey of business activity in the Eurozone, released last week, came better than we had expected, and suggests that the damage from Trump’s tariffs will be less than in the US. While activity pulled back, we did not see the sharp falls witnessed in US surveys.

Critically, the manufacturing subindex actually picked up from March, though it is not yet at expansionary levels. It is clear that the economic performance gap between the Eurozone and the US has closed, at least in the short term.

This week’s April inflation data Friday, should give further clarity on how much scope there is for the ECB to cut rates further, but we note that rates are no longer driving the common currency as strongly as they used to.

USD

Even as US stocks and Treasuries rallied strongly last week following Trump’s backtracking on Fed, the dollar ended barely unchanged, in a sign that the US currency has become a sort of escape valve that helps lower the trade deficit with minimum fallout to the rest of the economy.

After a series of mixed second-tier April economic reports, the NFP report, to be published on Friday, is probably the first serious indicator of the actual impact of tariffs and the resulting market turmoil on the real economy. The first-quarter GDP growth report, out on Wednesday, will also draw attention, though the worst of the tariffs came after the quarter’s close.

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