Tariffs, Talks & Turning Points: What’s Next for the Dollar, Euro & Pound?.

  • USD hinges on Bessent’s China update, with tariff news potentially breaking the dollar’s recent momentum.

  • Inflation data is critical—hot CPI could either lift the dollar or raise stagflation concerns, limiting upside.

  • EUR remains overvalued, and rate differentials continue to weigh despite recent pullbacks.

  • GBP shows relative strength, supported by trade optimism and strong Q1 growth.

  • Market risks are finely balanced, with geopolitics, inflation, and central bank tones all in play this week.

USD: Dollar Awaits Bessent’s China Update

President Trump called weekend US-China trade talks “very good,” with Treasury Secretary Scott Bessent set to reveal details today. Markets are banking on a tariff cut to 60% and signs of broader exemptions. The dollar’s recovery has hinged on positive trade headlines, and any failure by Bessent to deliver could blunt its momentum.

Inflation data due tomorrow is key. While April CPI may show a 0.3% rise, it’s likely too soon for tariffs to appear in consumer prices. A hot print could have mixed implications: in normal times, it would lift the dollar—but with limited room for further Fed hawkishness, it may stoke stagflation fears instead.

Retail sales and Fedspeak round out the week, with Powell’s cautious tone still dominating. The greenback faces cross-currents: trade optimism could push it higher, but weak data or inflation surprises may apply downward pressure. The DXY looks to hold support near 100.0 for now.

EUR: Too Pricey for the Fundamentals

EUR/USD briefly dipped below the 1.120 mark as investors await updates on US-China talks. If Bessent delivers good news, a further break lower could follow. Despite recent drops, the euro remains 3% overvalued against the dollar based on short-term models—largely due to interest rate differentials still favouring the greenback.

Geopolitical events like Russia-Ukraine peace talks and Trump’s push for a 30-day truce could sway EUR sentiment. A breakthrough may support the euro, but markets are cautious until real progress materializes. For now, support at 1.120 may hold until US data offers clearer direction.

GBP: A G10 Bright Spot?

The UK has a packed week ahead. Jobs data on Tuesday may show a still-strong labour market despite some recent cooling. Wage growth is expected to ease, helping reduce inflation pressures. Thursday brings Q1 GDP, with solid growth expected thanks to February’s manufacturing surge—even if March saw some pullback.

Sterling is benefiting from a combination of upbeat trade developments (US and India deals, EU talks coming), a slightly hawkish Bank of England, and supportive risk sentiment. These tailwinds could push EUR/GBP below 0.840, especially with investor positioning tilting in the pound’s favour.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.