• Equities are driving FX sentiment, giving the USD some resilience against weak data.

• US Q1 GDP is expected to contract, but strong personal consumption may limit dollar downside.

• Soft US inflation could support Fed doves, increasing the odds of a June rate cut.

• The euro is unreactive to local data, as markets stay focused on the ECB’s dovish stance.

• Sterling holds firm above 1.34, supported by weak US data and a strong technical trend.

USD: Stocks Shine as Economic Clouds Gather
The US dollar remains caught between conflicting pressures—on one hand, some softening in President Trump’s protectionist policies, and on the other, growing signs of an economic slowdown. Yesterday, equities helped tip the scales. A rally in US stocks, spurred by temporary tariff exemptions for auto parts, helped the dollar modestly strengthen despite disappointing economic data. Month-end portfolio rebalancing may have also lent support.

Today’s spotlight falls on Q1 US GDP, with expectations lowered to -0.1% QoQ annualised after a larger-than-expected March trade deficit. Our economists agree a negative figure is likely. Still, the markets will differentiate between data distorted by pre-tariff import surges and genuine consumption weakness. We believe personal spending may hold up better than feared, allowing the dollar to weather a weak GDP read.

Also on deck are April’s ADP jobs report and the March core PCE inflation print—the Fed’s preferred metric. A soft 0.1% reading on PCE may give Fed doves more comfort and increase the market’s conviction in a June rate cut, with 17 basis points already priced in.

For now, we hold a neutral stance on the dollar. While the data remains a headwind, signs of tariff relief and stable equities are providing some lift. But to sustain that, consistent positive trade developments—especially with China—will be crucial.

EUR: Euro Shrugs Off Data as ECB Dovishness Prevails
It’s also GDP day in the eurozone. France printed an in-line 0.1% QoQ growth rate, and Germany is expected to show a modest 0.2% rebound. Eurozone-wide numbers, out later today, are forecast at 0.2%, mirroring the prior quarter.

However, barring a big surprise, this data is unlikely to shift the euro. The same goes for the German and French inflation figures due this morning. The market remains firmly aligned with the ECB’s dovish outlook, and only a significant CPI miss could drive further dovish repricing. On the flip side, even a hotter-than-expected inflation print may not budge the ECB or the euro, given its relaxed view on transitory price spikes and the currency’s own strength acting as a buffer.

EUR/USD looks like it may be settling near 1.140, with solid demand seen around 1.130. But without fresh momentum, it’s unlikely to make a convincing break above 1.150, especially with US equities regaining their footing.

GBP: Pound Holds Ground After Multi-Year High
Sterling hit a three-year high above 1.3440 late Monday but moved into a consolidation phase early Tuesday. Despite that, weak US data reignited GBP/USD buying interest, lifting the pair just above 1.3400 after the New York open.

According to Scotiabank, the bullish trend remains intact, with the next resistance at 1.3750 and potentially 1.40. Support is seen in the mid-to-lower 1.32s.

US data was lacklustre: consumer confidence fell more than expected, job openings (JOLTS) dipped to 7.19 million, and the Dallas Fed manufacturing index posted a sharp April drop.

Scotiabank noted the Dallas report’s stagflationary tone adds to concerns about the US outlook, especially with no clear signs of easing in trade tensions. Still, more data is needed to confirm any trend shift.