Dollar Steadies as Key U.S. Data Week Begins

April 28, 2025

Win Thin

Trade brinksmanship is likely to continue; the Fed media blackout has gone into effect; Canada holds general elections today
ECB officials continue to acknowledge downside risks; U.K. CBI reported a firm April distributive trades survey
China emphatically denied trade talks with the U.S.

Please check out our Mind on the Markets Quarterly. We look at three themes shaping markets in Q2: EU integration/disintegration, tariffs and a possible tipping point for US economic exceptionalism, and a “Mar-a-Lago Accord.”

The dollar has steadied as a key data week begins. DXY is trading higher for the second straight day near 99.581. The dollar’s relief rally is being fueled by positive trade comments from the U.S. but we do not see China capitulating anytime soon (see below). USD/JPY is trading lower near 143.45 ahead of the BOJ decision Thursday. Elsewhere, the euro is trading lower near $1.1355 while sterling is trading higher near $1.3345. We continue to believe that much of the recent dollar weakness is due to a growing loss of confidence in U.S. policymakers as well as the negative impact of tariff uncertainty on the U.S. economy. We view last week’s relief rally with skepticism. Until we get total clarity on the impact of U.S. tariff policy, we look for continued dollar weakness and view any dollar recoveries as fragile, no matter how the U.S. data come in. In that regard, this week brings key U.S. data that are likely to show some of the initial negative impact.

AMERICAS

Trade brinksmanship is likely to continue. Data this week from both the U.S. and China are expected to show the first signs that tariffs are impacting the two largest economies in the world. Treasury Secretary Bessent said “Their business model is predicated on selling cheap, subsidized goods to the U.S. And if there’s a sudden stop in that, they will have a sudden stop in the economy, so they will negotiate.” We wholeheartedly disagree. China does not face any electoral repercussions and so it can wait this out much longer than the U.S. can.

The Fed media blackout has gone into effect. Most Fed officials remain on hold but a couple (Hammack and Waller) last week brought up the notion of rate cuts sooner rather than later. However, they did not really move the needle much on Fed expectations. Odds of a May cut are still below 10%, rising to around 65% in June and fully priced in for July. With the 90-day pause in reciprocal tariffs set to end in early July, even that month seems too soon for a cut given the ongoing uncertainty regarding the impact of tariffs. When all is said and done, however, it will all come down to the data, and we get quite a bit this week.

The only U.S. data today is the April Dallas Fed manufacturing survey. Headline is expected at -14.1 vs. -16.3 in March. So far, the regional Fed manufacturing surveys suggest downside risks to April ISM manufacturing PMI this Thursday, where headline is expected at 48.0 vs. 49.0 in March. However, S&P Global manufacturing PMI rose to 50.7 in April vs. 50.2 in March and suggests there may be some upside risks.

Canada holds general elections today. The first results will come in between 700-730 PM ET, when voting hours end in the four Atlantic provinces. Nearly all of the results will be released by 930 PM ET. The latest CBC News poll tracker show Prime Minister Mark Carney’s Liberals holding a consistent lead of over 40% since end-March and are likely to win a majority government. Carney is viewed favorably by financial markets due to his experience navigating the 2008 financial crisis and the impact of Brexit.

EUROPE/MIDDLE EAST/AFRICA

ECB officials continue to acknowledge downside risks. GC member Kazaks said that “If inflation were to undershoot the target significantly and for an extended period of time, the natural choice would be to lower interest rates into stimulus territory. Currently it is not the case.” ECB easing expectations have picked up. The market has fully priced in a 25 bp cut at the next meeting June 5. Looking ahead, the swaps market is pricing in nearly 75 bp of total easing over the next 12 months that would see the policy rate bottom near 1.5%. Rehn and Guindos speak later today.

U.K. CBI reported a firm April distributive trades survey. Total reported sales came in at -26 vs. -32 in March, while retailing reported sales came in at -8 vs. -20 expected and -41 in March. This suggests that the recent bounce in retail sales may not have been a one-off fluke. April retail sales data will be reported May 23. Bank of England easing expectations have picked up. The market has fully priced in a 25 bp cut at the next meeting May 8. Looking ahead, the swaps market is pricing in 100 bp of total easing over the next 12 months that would see the policy rate bottom near 3.5%.

ASIA

China emphatically denied trade talks with the U.S. Foreign Ministry spokesperson said “As far as I know there have not been any calls between the two presidents recently.” For emphasis, he stressed “Let me make it clear one more time – China and the U.S. are not engaged in any consultation or negotiation on tariffs.” Elsewhere, policymakers announced some minor measures to aid exporters hurt by the U.S. tariffs. These include guidance for banks to maintain loans to small- and medium-sized exporters, reducing costs for the domestic markets, and assistance in diversifying markets. We expect stronger stimulus measures ahead when the impact of the tariffs really bites.

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