The Dollar’s Drama: From Safe-Haven to High-Beta Headache.
Dollar Dive: The USD fell across the board this week, dragged down by fading safe-haven demand and growing concerns about US growth and fiscal risks.
Risk Currency Now? The dollar is behaving like a high-beta currency, sensitive to risk sentiment rather than providing refuge.
Euro Surge: EUR/USD is riding a wave of dollar weakness, trading well above fair value and potentially eyeing 1.15.
Sterling Steady: GBP/USD held near 1.30 thanks to better UK growth data, but was overshadowed by broader market moves.
Market Watch: Investors are eyeing PPI data and Fed speakers for hints of policy shifts, but odds of a May rate cut remain low.
USD: From Fortress to Fragile
It’s been a bruising week for the US dollar, now showing classic high-beta behaviour as it ends the week sharply lower. The FX board tells the story: all G10 currencies are up against the dollar, with notable gains of 2–3% from the euro, Aussie, and Kiwi, and a striking 4.5% rally in the Swiss franc. Even sterling chipped in with a modest rise.
A dollar confidence crisis? We’re in the thick of one. Yesterday’s price action screamed “risk-off America,” with US equities and Treasuries both dropping, despite a cooler-than-expected CPI print (0.1% MoM vs. 0.3% forecast). The market isn’t buying into March inflation as meaningful anymore – instead, it’s focused on the threat of slowing growth mixed with persistent inflation. Even solid demand at Treasury auctions hasn’t stopped USD swap spreads from widening (10-year at 56bp), and questions over the fiscal outlook—following a budget resolution that complicates future tax cuts—aren’t helping either.
The greenback is no longer playing the safe-haven role; it’s become a risk barometer. The flight to alternatives like the CHF, JPY, and even the euro, underlines how investors are pulling away from the US. Meanwhile, high-beta currencies like the AUD and NZD are catching flows, indicating bets on broader USD weakness.
Trying to call a bottom here is like predicting Trump’s next tariff tantrum. The dollar could bounce on good trade news, but without a serious policy U-turn—especially with China—confidence won’t recover. With DXY flirting with 100, risks remain tilted to the downside.
On today’s data docket: March PPI is out (a key input for the Fed’s preferred inflation measure, core PCE), and the University of Michigan sentiment survey drops too. But don’t expect miracles. All eyes are on whether recent inflation data tempts the Fed to hint at earlier rate cuts. For now, the odds of a May move remain low, at just 30%.
EUR: Overvalued, But On a Roll
The euro has been riding the USD weakness wave, trading around 1.125 and briefly touching 1.138 overnight. It’s benefiting from a mix of its reserve currency status and hopes the EU won’t escalate trade tensions with the US.
Still, this rally isn’t backed by fundamentals. The rate gap between US and EU 2-year swaps has widened in favour of the dollar, now sitting at 155bp—implying EUR/USD should be closer to 1.05. Throw in equity trends and market models peg “fair value” near 1.09. So, current levels suggest around 4% overvaluation.
That said, we’ve seen this before. In 2020, a similar setup pushed the pair 6% above fair value. In today’s terms, that could mean a move to 1.15 isn’t far-fetched—especially in this jumpy, illiquid FX environment. Just expect a bumpy ride along the way.
GBP: Holding the Line Near 1.30
Sterling is holding up near 1.30 versus the dollar, buoyed slightly by a surprisingly solid set of UK growth numbers. February GDP beat forecasts at 0.5% (vs. 0.1% expected), driven by gains in services, industry, and construction.
Still, the market reaction has been muted. Global focus remains on broader risk sentiment and US dollar dynamics. GBP/USD topped out just under 1.3050 overnight before pulling back. Against the euro, GBP took a hit—dropping to 15-month lows below 1.1500 before a modest recovery.
UK trade data was mixed: a record goods deficit of £20.8bn, partly offset by a surplus in services. All in, the domestic outlook has improved, but FX traders are more dialled into global cues and the dollar’s dramatic week.