Dollar on the Defensive: Confidence Crisis Rattles the Greenback.

  • Dollar Dragged by Politics: USD weakness is driven by recession fears and Trump’s attacks on Fed independence, which undermine global trust in the dollar.

  • Rate Cut Uncertainty: Markets are watching whether Powell can withstand political pressure or if the Fed buckles and cuts rates—an outcome that would further hit the dollar.

  • Euro Surges on Dollar Flight: EUR/USD may climb toward 1.20, not because of euro strength, but due to investors fleeing USD assets; however, 1.13 remains the base case.

  • Pound Powers Ahead: GBP/USD remains strong amid dollar softness, with Trump’s erratic policy style and Fed interference weighing on the greenback.

  • High Volatility Ahead: Despite a light US data week, markets remain jumpy—any developments in the Fed vs. Trump saga or economic surprises could spark more FX swings.

USD: Confidence Crisis Extends

Recent losses for the US dollar reflect growing fears around domestic economic slowdown and waning trust in the dollar’s traditional safe-haven status. The latest bout of weakness, seen over the Easter Monday holiday, has been fuelled by President Trump’s renewed criticism of the Federal Reserve and pressure on Chair Jerome Powell to cut interest rates “now.” This direct political interference undermines the Fed’s independence—an essential pillar of the dollar’s credibility as a global reserve currency.

Market participants are increasingly interpreting Trump’s blame game as a subtle admission that his administration shares mounting recession fears. While an emergency rate cut or Powell’s removal remain unlikely, the very suggestion adds instability. As economic data softens and the pressure builds, all eyes will be on how Fed officials respond this week. So far, markets are pricing in virtually no chance of a rate cut in May, but the credibility cracks are showing.

Trump’s verbal attacks on the Fed have sharpened market sensitivity around the central bank’s independence, increasing the bearish bias toward the dollar. Still, the dollar is already oversold, and the sharp move down may have been exaggerated by low liquidity over the holiday. With limited downside catalysts this week, a temporary dollar bounce or stabilization isn’t off the table.

FX volatility remains high despite a sparse US data calendar. Attention today turns to the Richmond Fed manufacturing index and Philadelphia Fed non-manufacturing data, while tomorrow’s S&P Global PMIs are likely to be the week’s most market-moving release.

EUR: Eyes on 1.20

The euro has benefited from the dollar’s tumble, with EUR/USD breaching 1.15. With no significant resistance until 1.20, traders are eyeing further gains, even though this move has little to do with eurozone fundamentals. Rather, it’s a flight from the dollar in response to political interference in US monetary policy.

While a surge to 1.20 remains possible, our outlook remains more cautious, targeting 1.13 by quarter-end. However, short-term volatility opens the door to further upside, especially if the Fed gives in to Trump’s demands. That said, any push to 1.20 would likely mark the peak of this confidence crisis rather than a lasting shift in the EUR/USD range.

Eurozone data this week includes PMIs, the Ifo business survey, and the ECB wage tracker. A packed schedule of ECB speakers, including President Lagarde on CNBC today, will offer more clues about the central bank’s dovish stance and its implications for the euro’s rally.

GBP: Holding High Amid Dollar Woes

Sterling continues to trade near its three-year high at 1.3425 against the dollar, buoyed by ongoing USD weakness. President Trump’s aggressive rhetoric against the Fed has kept the dollar under pressure, allowing GBP/USD to edge higher.

The Dollar Index (DXY) slid to a fresh three-year low around 98.00 before showing tentative signs of support. Trump’s social media posts criticized Powell’s wait-and-see approach, claiming that the US economy faces serious risks unless rates are cut immediately. His thinly veiled threats to remove Powell further damaged the perception of Fed independence.

Markets reacted by reassessing the dollar’s safe-haven appeal, which has already been compromised by Trump’s unpredictable trade policies. From imposing harsher-than-expected tariffs to reversing decisions at short notice, the administration’s inconsistent strategy has added to investor anxiety. The net result: reduced confidence in the dollar and increased demand for alternatives like the pound.

*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.