Euro Dips to $1.14 as Trump Dispels FX Market Fears
The euro declined to $1.14 in the forex markets, just below the $1.15 peak reached earlier this month, its highest level since 2021, as concerns over the Federal Reserve’s independence eased slightly.
The dollar recovered some ground after President Trump stated he has no intention of dismissing Fed Chair Jerome Powell, reducing fears over the independence of the monetary authority.
FX options bets had increased sharply as traders and corporate continued to hedge against rapid exchange rate fluctuation, having seen the euro gaining strength against the greenback in successive trading sessions.
The Canadian dollar weakened toward $1.39, easing from a six-month high of US$1.38 on April 22nd, as it came under pressure from a resurgent US dollar.
Still, the euro has climbed over 5% against the dollar so far in April, as investors increasingly question the dollar’s dominance in the global financial system and turn to the common currency as an alternative.
Additional support came from expectations of increased defense spending, particularly in Germany. On the policy front, the ECB cut its deposit rate by 25bps to 2.25% as anticipated, the lowest since early 2023.
The central bank also removed language referring to its policy stance as “restrictive,” while warning that the economic outlook has worsened due to escalating trade tensions. Markets are now betting on two or three more 25 bps rate cuts by the end of the year.
The U.S. dollar’s recent selloff may transition into a more consolidative phase rather than a sustained reversal, given some competing forces at play, DBS Group Research’s Philip Wee says in a report.
The tug of war between President Trump’s unpredictable policymaking and the reality of slowing growth amid fragile risk appetite could limit clear directional conviction in the near term, the senior forex strategist says.
The offshore yuan steadied around 7.30 per dollar on Wednesday amid signs of a potential easing in US-China trade tensions. During a White House news conference, US President Trump indicated that the 145% tariff on Chinese goods “will come down substantially, but it won’t be zero.”
His comments followed remarks from US Treasury Secretary Bessent, who expressed optimism about de-escalating the trade war between the world’s two largest economies, though he cautioned that negotiations with China would be a long and challenging process.
Previously, Trump announced a 90-day pause on planned tariff hikes for most countries but raised tariffs on Chinese goods to 145%, prompting Beijing to retaliate with 125% tariffs on US goods.
In China, the central bank urged state-owned enterprises to prioritize using the yuan for payments and settlements in their overseas operations, a move seen as part of a broader push to accelerate the currency’s internationalization amid rising global trade tensions.
