Markets in Flux: Fed Focus, Fading Dollar & Rotation Realities.

• Dollar Watch: The dollar remains under pressure; Powell’s speech tonight could confirm a dovish stance, especially if aligned with Waller’s tariff-related rate cut view.

• Treasury Yields: Recent sell-off likely driven by hedge fund positioning, not foreign selling; if confirmed, yields could stabilize and cap the dollar.

• BoC Decision: The Bank of Canada is expected to hold rates today, but weak inflation data makes this a tight call—USD/CAD remains heavy below 1.40.

• Euro Support: Signs of capital rotating into eurozone equities could sustain the EUR/USD rally, especially as fiscal stimulus draws foreign interest.

• Sterling Outlook: Falling UK services inflation adds weight to BoE cut expectations; GBP/USD benefits from dollar weakness, while EUR/GBP may find support near 0.85.

USD: Fed in the Spotlight as Volatility Stays Sticky

FX volatility may be cooling slightly, but it’s far from crashing—and the dollar isn’t exactly bouncing back either. Equity markets have found some footing, but the real curveball came from Treasuries. Last week’s sharp yield move looks more like a leveraged unwind, possibly from hedge funds backing changes to the Supplementary Leverage Ratio, rather than a flight of foreign capital.

If that’s the case, US yields may settle a bit lower, and the dollar doesn’t need to move much higher from here. Watch for tonight’s update on China’s US Treasury holdings—unchanged levels would be a relief, but a surprise decline could pressure both Treasuries and the greenback again.

Retail sales for March might look strong as consumers brought forward purchases to dodge new tariffs. But don’t expect good data to lift the dollar much. Traders are far more interested in what the Fed has to say—specifically Chair Powell at 19:30 CET. Earlier this week, Fed Governor Waller laid out two scenarios tied to tariffs, both arguing against a lasting inflation spike. In the worst case, Waller favors earlier and more aggressive rate cuts to avoid 5% unemployment. If Powell echoes that tone tonight, the dollar could feel the squeeze.

Look for the DXY to hit resistance around 100.25/50, with a break below 99.00 still in sight.

CAD: Cautious BoC Likely to Hold Fire—But It’s a Close Call

The Bank of Canada sets policy today at 15:45 CET. With 225bp of easing already in the bag and Canadian goods shielded from US tariffs, a pause is slightly more likely than a cut. That said, weaker-than-expected March CPI data has nudged market expectations toward the dovish side.

Right now, idiosyncratic US risks and trade dynamics are overriding short-term rate spreads in USD/CAD. While the loonie isn’t as well-positioned as the euro to benefit from anti-dollar sentiment, USD/CAD looks a bit stretched below 1.40. Any dollar rebound from here would likely be slow, making the pair still attractive to sellers near that level.

EUR: Capital Rotation Could Power the Rally

February’s eurozone balance of payments numbers might not usually move markets, but today they could add momentum to a developing rotation theme. Survey data earlier this year hinted at capital shifting out of US equities and into Europe, and this data may confirm it.

In the 12 months to January, eurozone investors poured €134bn into non-EZ equities—repatriation would suggest a slowdown in that flow. Meanwhile, foreigners snapped up €334bn in eurozone stocks during the same period. If those numbers rise, especially with US asset managers looking Europe’s way amid fiscal stimulus headlines, EUR/USD could get a further boost.

It seems like EUR/USD has already bottomed out and could push above 1.1425, heading toward 1.1500.

GBP: Softer Services Inflation Supports Rate Cut Narrative

The pound is softer this morning as UK services inflation dipped to 4.7% in March, pulling headline CPI down to 2.6% YoY. Our UK economist thinks inflation could climb again to 4% by Q3 due to energy prices, but services inflation could drop even further in April and May.

That would reinforce expectations for three Bank of England cuts this year, with the next likely in May. EUR/GBP is giving back some of last week’s surge, but a strong EUR/USD trend supports a return to 0.86. GBP/USD, meanwhile, is riding the weak dollar narrative, with last year’s high of 1.3430 in its sights.