Dollar Index Rebounds Amid Trade Optimism and Economic Concerns

The dollar index (DXY00) has risen by +0.32% today, bouncing back from a 3-year low hit on Monday. The rebound is fueled by short covering, following optimistic statements from US trade negotiators about making “significant progress” toward a bilateral trade deal with India, after discussions between Vice President Vance and Indian Prime Minister Modi.

However, the dollar’s gains are restrained due to the latest news from the Richmond Fed’s manufacturing survey. The survey revealed that current conditions dropped more than anticipated, hitting a 5-month low. Furthermore, uncertainty around President Trump’s potential decision to fire Fed Chair Powell poses additional risks for the dollar. Such a move could undermine the Fed’s independence and decrease overall confidence in the currency, which is already struggling under the weight of aggressive trade tariffs prompting some foreign investors to divest dollar assets.

The Richmond Fed’s April manufacturing survey index fell by -9 to a 5-month low of -13, disappointing expectations that had forecast a dip to -7.

In a related development, the International Monetary Fund (IMF) has revised its global GDP forecast for 2025 downward to +2.8%, a decrease from the January estimate of +3.3%. They also cautioned that the outlook may worsen further due to the potential onset of a global trade war sparked by US tariffs. Specifically, the IMF lowered its projection for the US GDP in 2025 to +1.8%, down from +2.7%, and cut the Eurozone GDP forecast to +0.8% from a previous +1.0%.

This week, the market’s attention will shift to any changes in US trade policy. On Wednesday, March’s new home sales are anticipated to increase by +0.7% month-over-month to 681,000. The Fed Beige Book will also be released that day. Thursday will bring the report on March’s capital goods orders excluding defense and aircraft, expected to rise by +0.1% m/m. Additionally, March existing home sales are projected to decline by -2.8% m/m to 4.14 million. Finally, on Friday, the revised University of Michigan consumer sentiment index for April is not expected to change from 50.8.

Current market sentiment is discounting an 11% likelihood of a -25 basis point rate cut following the May 6-7 FOMC meeting, a notable drop from a 30% chance observed last week.

Eurozone Economic Indicators Weigh on Euro Performance

The EUR/USD (^EURUSD) is down by -0.43% today, retreating from a 3-1/3 year high reached on Monday. The dollar’s recovery has triggered long liquidation pressures in the euro. Additionally, dovish remarks from ECB Governing Council member Rehn have added to the euro’s pressure, as he indicated that Eurozone inflation is stabilizing at the 2% target, potentially leading the ECB to sustain its easing monetary policy.

Today’s losses for the euro intensified when the Eurozone April consumer confidence index fell more than expected, reaching a 17-month low.

Rehn stated that he believes the overall impact of tariffs on Eurozone inflation is “modest.” In a concrete sign of economic slowdown, the April consumer confidence index fell by -2.2, landing at -16.7, notably worse than the projected drop to -15.1.

Swaps currently assign a 92% chance for a -25 basis point rate cut by the ECB during the policy meeting scheduled for June 5.

Yen Gains amid Dollar Weakness and Safe-Haven Demand

Today, the USD/JPY (^USDJPY) has decreased by -0.04%. The yen extended gains from Monday, reaching a 7-month high against the dollar as concerns over Trump’s threats to dismiss Fed Chair Powell bolstered safe-haven demand for the yen. Additionally, support for the yen continued following Monday’s Bloomberg report indicating that BOJ policymakers see little necessity for altering their gradual interest rate increase strategy.

Precious Metals See Moderate Gains Amid Dollar Fluctuations

In the commodities market, June gold (GCM25) has risen by +18.40 (+0.54%), while May silver (SIK25) is up by +0.254 (+0.78%). Precious metals are experiencing moderate gains, with June gold reaching a contract high and near-futures gold posting a record high of $3,485.60 an ounce. Diminishing confidence in the dollar, coupled with President Trump’s potential actions regarding Fed leadership, has driven higher demand for precious metals as a secure store of value. Moreover, dovish comments from ECB member Rehn regarding inflation and ongoing geopolitical tensions in the Middle East—particularly the breakdown of the Israel-Hamas ceasefire—are further fuelling this demand.

Nevertheless, the dollar’s strength today has tempered gains in precious metals. The rebound in stocks has diminished some of the safe-haven appeal for these assets. Additionally, silver’s advances are curbed by the IMF’s downward revision of its global GDP forecast and concerns that the US-China trade war may slow economic growth and dampen demand for industrial metals.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data herein are intended strictly for informational purposes. For more details, please refer to the Barchart Disclosure Policy here.

The views and opinions expressed in this article represent those of the author and do not necessarily reflect the views of Nasdaq, Inc.