Dollar on the Defensive: Dovish Data Dents USD Momentum.
USD Data Turns Dovish: April’s CPI, PPI, and retail control group figures all underperformed, pointing to weaker inflation and real consumption.
Markets Hesitant on Fed Cuts: Despite soft data, pricing still implies less than 50% chance of a rate cut before September; USD swap rates adjusted slightly lower.
DXY Under Pressure: Strategic USD short positions are growing; technicals suggest a potential retest of the 100.0 support level.
EUR Poised for Gains: Strong eurozone industrial data and firm expectations of two ECB rate cuts support a bullish near-term view on EUR/USD.
GBP Rides Dollar Decline: Weaker U.S. data and falling Treasury yields have lifted GBP/USD, though UK-specific drivers remain muted.
USD: Dovish Signals Pile Up, Dollar Struggles to Hold Ground
This week delivered a clear dovish tilt for the Fed. After a soft CPI report, April’s PPI surprisingly fell 0.5% MoM (vs. +0.2% expected), with March figures revised higher. Annual PPI figures dropped sharply: headline PPI declined from 3.4% to 2.4%, and core PPI slid from 4% to 3.1%. Retail sales came in at +0.1% MoM, slightly above forecasts, but the control group—a GDP proxy—fell 0.2%, suggesting real consumption likely contracted by 0.3–0.4%.
Despite this, markets remain cautious. The USD 2Y OIS rate has slipped 10bp from recent highs but still shows less than 50% odds of a Fed cut before September. Dollar pricing isn’t fully absorbing the soft data, partly due to distortion from tariff-related uncertainty. Still, with positioning increasingly skewed short, more dovish repricing could spark fresh USD selling.
Today’s U.S. calendar is light. April housing starts may show growth, and import prices likely fell with lower oil. Attention may shift to the University of Michigan inflation survey, though its reliability is limited by sample size and political noise—especially given last month’s outsized 6.5% one-year inflation expectation print.
Market action this week suggests fading USD strength. With strategic shorts building, the DXY may soon retest the 100.0 support level, and momentum now favors further downside.
EUR: Eyes on 1.13 as Dollar Weakens
The euro has seen only a mild reaction to local data. Q1 GDP was nudged down slightly to 0.3%, but March industrial production came in strong. Market consensus is now firmly behind two ECB rate cuts in 2025—an outlook shared by us—especially with little pushback from policymakers, even those typically hawkish.
ECB members have downplayed U.S. tariff risks to inflation. The latest comments, including from hawkish figures like Kazaks, suggest a June rate cut is increasingly likely. In the FX space, EUR/USD remains anchored around 1.120, but the bias leans towards a push to 1.130, supported by broader USD weakness. Our targets: 1.120 in one month, 1.130 by end-June.
GBP: Sterling Lifts on USD Weakness, Despite Mixed UK Drivers
GBP/USD extended gains into the European session on Friday, nearing 1.3330, as the greenback came under pressure following disappointing U.S. inflation and retail data.
The DXY slipped to around 100.50 after April PPI fell unexpectedly, mainly due to reduced hospitality prices, likely linked to lower U.S. tourism amid trade tensions and political rhetoric. Retail sales, meanwhile, rose just 0.1%—a major slowdown from March’s 1.5% gain—suggesting pre-tariff stockpiling may have boosted earlier data.
Tourism weakness, softer inflation, and flat consumer spending have dragged 10Y Treasury yields down from 4.55% to 4.40%. Yet despite signs of economic cooling, Fed rate expectations haven’t shifted dramatically. According to CME’s FedWatch tool, markets still see a 91.8% chance of no change in June and 61.4% for a hold in July.