Doubts About US Exceptionalism Weigh On The Dollar
Impact on GBP: Sterling rallies against Euro & Dollar
The British Pound gained against the Euro and US Dollar after UK retail sales surged past expectations and the government posted a rare January budget surplus.
GBP/EUR climbed to €1.2080 as retail sales jumped 1.7% MoM, well above the 0.3% forecast. GBP/USD hit a two-month high of $1.2678 as markets scaled back BoE rate cut bets.
Despite the upbeat data, risks remain. The sales boost was driven by food purchases, while non-food sales fell, hinting at weak consumer confidence. A shift toward at-home dining could also hurt restaurants and pubs, which face rising costs in April.
While the Pound rallied, its sustainability depends on whether demand remains broad-based. With the BoE balancing inflation risks and economic slowdown, upcoming inflation and wage data will be key.
Data
9:30am -?Flash Manufacturing PMI &?Flash Services PMI
Impact on EUR: Euro gains on Dollar unwinding but lacks broader appeal
The Euro has risen as Dollar longs unwind but remains weak across crosses. Today’s PMI release could offer a catalyst, though our economists see little chance of a meaningful growth turnaround. Markets expect only a slight uptick in the Eurozone composite PMI from 50.2 to 50.5.
German data will be closely watched, especially after the ZEW survey showed improved investor sentiment ahead of the election. However, PMI expectations remain modest.
The key event for the Euro is Sunday’s German election. Polls show CDU/CSU leading at 30%, followed by AfD at 20% and SPD at 15%. Markets aren’t pricing in major risk from a strong AfD showing, given coalition barriers. Still, with EUR/USD at recent highs, traders may take profit before the vote. General consensus?remains bearish on the pair.
No Major Data
Impact on USD: Dollar slips on US sentiment, but downtrend unlikely
FX markets were volatile yesterday, with the Dollar erasing weekly gains amid heavy positioning shifts. A mix of factors drove the correction: Trump hinted at a US-China trade deal, US data disappointed, equities struggled after weak Walmart earnings, and the yield curve flattened following Treasury Secretary Bessent’s remarks.
While trade hopes may grab headlines, markets remain cautious about Trump’s rhetoric. Bessent's first call with Chinese officials today could yield positive signals, but long-term tariff policies suggest drawn-out negotiations.
Rather than chasing the Dollar’s decline, most see it as a reaction to deteriorating US sentiment. Walmart flagged softer consumer spending, and recent data adds to skepticism about late-2024 optimism. Meanwhile, short-term USD swap rates have edged lower but still resist fully pricing in two Fed cuts, given the central bank’s inflation concerns.
Most don’t foresee a sustained Dollar downtrend, but near-term volatility is likely. Ultimately, trade policy should take center stage, outweighing optimism on Russia-Ukraine peace talks and growth concerns. Most maintain a bullish Dollar outlook.
Data?
2:45pm -?Flash Manufacturing PMI &?Flash Services PMI
Make Foreign Exchange, Easy, with EasyFX.
Seeking better value for your international money transfers?
Stay up to date with all of the latest currency news, our daily market updates provide insight into major currency movements helping you stay informed and make international transactions at the right time, for you.
Whether you’re buying or selling property abroad, sending money to loved ones, or need your travel money to go further, please call our team of expert brokers today or get a free quote and start making foreign exchange, Easy.