Home Daily Commentaries US Dollar stands victorious as trade tensions appear to recede

US Dollar stands victorious as trade tensions appear to recede

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Friday 2 May, 2025

Daily Currency Update

The Euro data calendar is empty after most European countries were closed yesterday for Labour Day and this has allowed the Euro to trade on broader market themes. That said, the trend for the single currency maintains a bullish bias despite having consolidated in the last two weeks after gaining almost 4% vs the US Dollar.

Yesterday saw the first UK-EU summit since Brexit. Expectations are for the UK to sign a new security and defence pact (SDF) with the EU. This would be similar to the SDF’s the EU has with six other countries already. Over the summer there could also be progress made on the issue of veterinary checks on border goods. The design from the Labour Government is that a closer relationship with Europe could allow for UK growth prospects to become a reality and give Chancellor Reeves more to spend.

The US Dollar gained ground yesterday as because of optimism of a de-escalation in global trade conflicts despite disappointing economic data in the US. The Trump administration said that tariff agreements with South Korea, Japan and India were moving positively and added that a deal with China is “close”. On the economic front, unemployment rose and the purchasing managers index fell creating a conundrum for the Federal Reserve at their next policy meeting.

 

Key Movers

The US has become the EU’s most important trading partner in recent years with the bilateral goods relationship worth almost EUR 1tn in 2024. Depending on the ultimate scope and duration of US tariffs could sharply reduce the value of trade between the US and EU. This may well prompt the EU to explore other opportunities and expand trade links elsewhere. Recently EU officials have suggested that the UK may offer the greatest opportunity for improved trade flows.

Sentiment has turned increasingly dovish in the UK with markets now anticipating a 25 basis point cut when the MPC meet to set policy rates on May 8th. These expectations have intensified as US tariffs may reduce global inflation and weigh on economic growth in the UK. BoE policy maker Ms. Greene added that labour market risks have increased, citing the recent increase in employers national insurance contributions from 13.8% to 15%.

Treasury secretary , Scott Bessent, said yesterday the fact that the two year Treasury bond yield is below the federal funds rate is a signal that the Federal Reserve should cut rates. The US Dollar rose yesterday against a basket of peers ahead of the release of non-farm payroll data due later today. The report will be scrutinised carefully to assess the initial negative impact of President Trump’s “Liberation Day” tariffs.

 

 

Expected Ranges

  • GBP/USD: 1.3290 - 1.3345 ▲
  • GBP/EUR: 1.1755 - 1.1805 ▲
  • GBP/AUD: 2.0725 - 2.0775 ▲
  • EUR/USD: 1.1280 - 1.1330 ▲

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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