Dollar on the Defensive: Diversification, Data, and Doubt.

  • Dollar under pressure: US Treasuries remain weak, and April’s volatility continues to weigh on USD performance.

  • De-dollarisation gains traction: Record foreign purchases of Japanese assets in April support the diversification narrative.

  • Currency pact speculation: Rumours around US-Asia trade talks and currency policy are adding downward pressure on USD in the region.

  • Fed and retail data in focus: Markets await Powell’s comments and April retail sales—both likely to reinforce a cautious stance.

  • Euro and pound supported: EUR and GBP look firm, benefiting from diversification flows and political developments, respectively.

USD: Evidence and Speculation Undermine Dollar Strength
The US dollar is slipping slightly against major currencies, still weighed down by the lingering effects of April’s volatility. US Treasuries remain under pressure, and spreads versus benchmarks like SOFR and German bunds have yet to reverse much of the April widening. Curiously, USD/JPY has decoupled from Treasury yields, breaking a typically strong positive correlation.

“De-dollarisation” continues to be a hot-button topic. Though often driven by speculation, fresh data lends real weight to the diversification narrative. April data from Japan’s Ministry of Finance revealed $25bn in foreign purchases of Japanese equities and $31bn in long-term debt—the highest combined total since 2005. Rather than simply reducing global exposure, investors appear to be reallocating funds toward Japanese assets—adding credibility to the de-dollarisation trend.

Meanwhile, rumours persist that upcoming US trade negotiations in Asia may feature currency-related clauses. This chatter is pressuring USD/TWD and USD/KRW. With Taiwan, Korea, and others already under US Treasury scrutiny for currency policies, such speculation could hover over the dollar in coming weeks.

Markets are now turning to US April retail sales, expected to show no growth following March’s rebound. Weak figures could expose the dollar to downside risk. Fed Chair Powell also speaks today, but is unlikely to shake up current expectations of just 50bp in rate cuts this year, especially with long-term inflation expectations rebounding. Unless we see a major upside surprise in retail sales, DXY appears set to remain soft, with 100.20/25 acting as key short-term support.

EUR: Dollar Weakness Keeps Euro Buoyant
EUR/USD has firmed below 1.11 and should remain supported. With eurozone data light—only the second GDP reading due today—EUR/USD remains at the mercy of USD developments. Next week’s eurozone Balance of Payments data could add momentum to diversification trends if equity inflows remain strong, as in February.

Expect EUR/USD to trade in a 1.11–1.15 range in the near term, with risks leaning upward. Resistance around 1.1265 may serve as a near-term cap.

GBP: UK GDP May Be Inflated, But Sterling Still Looks Good
Sterling hasn’t rallied significantly despite a robust 0.7% quarter-on-quarter UK GDP print for Q1 2025. ING’s UK economist suggests this may reflect seasonal distortions that flatter early-year data but weaken the second half.

Nevertheless, sentiment toward GBP remains positive. The upcoming UK-EU summit—the first since Brexit—could spark fresh alignment discussions, which would be sterling-positive. Given a shaky dollar backdrop, GBP/USD looks poised to test the 1.3360–1.3400 range.

*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.