Dollar Dilemma: Can Bessent’s Words Keep the Rebound Alive?.

  • Dollar Recovery Relies on Rhetoric: Market-friendly signals from Trump and Bessent are temporarily supporting the dollar, but investor trust remains shaky.

  • Bessent’s Strong Dollar Message Matters: His back-to-back affirmations have stabilized sentiment, hinting that Treasury is concerned about recent dollar weakness.

  • EUR/USD Faces Correction Risks: Trading above fair value, the euro is at risk if US optimism builds. A break below 1.130 could trigger broader euro weakness.

  • Sterling Finds Support on USD Softness: GBP/USD climbs as tariff concerns ease. Technical indicators suggest potential for more gains, barring a drop below key support.

  • Data Still a Wildcard: US jobless claims and durable goods figures today could sway sentiment, especially if they stoke recession worries.

USD: Verbal Rescue for a Vulnerable Greenback?
The dollar’s rebound continues as markets interpret recent Trump administration moves—on tariffs and the Fed—as signs of cooling tensions. This has restored a sliver of confidence among investors, who are now cautiously optimistic. However, the memory of previous false dawns remains fresh, especially after the short-lived 90-day tariff pause that ended with steeper Chinese duties.

Historically, the dollar benefits more than any other G10 currency from tariff de-escalation news. But bearish sentiment has been dominant, as investors question the US’s investment credibility. As such, every rally is at risk of quick reversals unless Trump maintains a steady stream of market-friendly news. The dollar’s recent bounce seems to have found some verbal support from Treasury Secretary Scott Bessent, who reiterated the US’s “strong dollar policy” at an IIF event. His back-to-back comments this week appear to have soothed markets—at least for now.

Still, underlying caution persists. Some traders are already selling into dollar strength, especially against the yen. Meanwhile, economic data like durable goods and jobless claims could either support or challenge this rebound, depending on how recession fears play out.

EUR: A Fragile Ascent Meets a Firmer Greenback
Relief over Trump’s apparent support for Fed Chair Powell has tempered bullish EUR/USD momentum. The pair is still trading around 3.5% above its fair value, based on short-term models that incorporate rate and equity spreads. That premium suggests the euro may be vulnerable to a sharper pullback, especially if positive US headlines keep coming.

The euro also appears overbought, according to positioning data—second only to the yen in the G10. Attempts to push higher have repeatedly been stopped around the 1.130 mark, a level that now serves as a battleground. A clear break below could pave the way for a larger correction and renewed interest in long-dollar positions. On today’s watchlist: German IFO surveys and ECB speakers, which could shape short-term euro sentiment.

GBP: Pound Picks Itself Up as Dollar Pauses
Sterling has snapped a two-day losing streak, lifting GBP/USD to around 1.3270 in early European trade. The move comes as Trump’s tariff stance appears less aggressive, pressuring the dollar and boosting the pound.

Technically, the pair remains constructive. It’s supported by the 100-day EMA and an RSI reading above 63, indicating bullish momentum. Upside targets include 1.3424 and 1.3475, with 1.3638 as the stretch goal. On the downside, 1.3200 acts as a key psychological floor. A sustained break below this could drag the pair toward 1.2949 and eventually to the 100-day EMA at 1.2837.

*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.