Dollar Rebound Pressures Euro and Pound

Dollar Rebound Pressures Euro and Pound

The U.S. dollar staged a modest recovery through the final stretch of April, bouncing off deeply oversold conditions after recording its worst monthly performance in over three years.

• Dollar rebounds modestly after its steepest fall in three years, supported by strong data and easing trade risks.
• Euro stays heavy as growth downgrades and trade tensions cloud the outlook.
• Pound holds firmer than euro, consolidating near highs but remains exposed to dollar strength.

The Dollar Index (DXY) briefly fell below the critical 100 mark—a psychological blow for dollar bulls—but managed to gain some ground heading into May. This has been the heaviest, and lowest drop since the start of 2025.

This rebound was fueled by a combination of factors:

• Political volatility: Markets briefly steadied after former President Trump walked back comments about firing Fed Chair Jerome Powell, calming fears over Fed independence.

• Stronger U.S. data: Firm consumer demand, a tight labor market, and a nascent manufacturing recovery helped ease recession worries, trimming expectations for immediate Fed rate cuts.

• Tariff relief hopes: Reports that the U.S. may scale back planned tariffs on China supported risk appetite, reducing inflationary concerns and stabilizing capital flows back toward U.S. assets.

Dollar Stabilizes as Euro Faces Growing Headwinds

Meanwhile, the euro struggled to maintain momentum. Despite dollar weakness earlier in the month and still on a slow pace, Euro came under renewed pressure as fresh headwinds emerged from within the eurozone with IMF taking the spotlight as it lowers Eurozone Growth Forecast from an expected 1.2% growth rate down to 0.8%

Why the IMF Cut Eurozone Growth Forecasts:

• U.S. Tariff Pressures: 
  • The escalation of U.S. tariffs against European goods has directly weakened export demand.
  • Eurozone economies, especially Germany and France, rely heavily on international trade, and higher tariffs mean reduced competitiveness and shrinking overseas sales.
• Weaker Manufacturing Activity: 
  • Eurozone manufacturing PMI readings have consistently fallen, signaling contracting industrial output.
  • Industries like automotive, machinery, and chemicals—core drivers of the eurozone economy—are being hit hard by global trade tensions.
• Soft Business and Consumer Confidence: 
  • Trade war fears and slowing global demand have dampened investment sentiment.
  • Households, facing rising prices and an uncertain outlook, are spending more cautiously, slowing internal demand.
• Structural Weakness in Key Economies: 
  • Germany, the bloc’s largest economy, has faced persistent weakness due to falling exports and energy price volatility.
  • Italy and France also continue to grapple with budget deficits and sluggish productivity growth.
• Delayed Policy Transmission: 
  • Despite repeated ECB rate cuts, monetary easing has taken longer to filter through the economy due to credit tightening and cautious corporate lending.

While short-term factors may offer moments of stability for the euro, the broader outlook remains clouded by persistent trade tensions and a weakened industrial base. As long as tariff wars continue to weigh on global demand, the eurozone’s growth trajectory is likely to stay subdued — leaving the euro vulnerable to further downside risks in the months ahead.

EUR Technical Outlook

Dollar rebound is still not enough to bring Euro down as it is currently holding its ground. Another factor strengthening Euro is the rotation of investors from the US market to European market. Check out my previous blog here: https://acy.com/en/market-news/market-analysis/markets-shifting-global-investors-seek-stability-europe-assets-j-o-04212025-113829/

A break of this range could spark a new or renewed direction for Euro as long as dollar’s strength dissipates and confidence continues to diminish.

Key Red Folders for Euro

• If Actual Numbers Come Lower Than Forecast → EUR could drop further across the board (especially vs USD, JPY).
• If Numbers Surprise Higher → Short-term EUR bounce possible, but overall tone stays weak unless sustained.

Sterling Pauses Amid Dollar Strength and Trade Pressures

Following the euro's challenges, the British pound faces its own set of headwinds. While the eurozone contends with slowing growth and falling inflation, the pound’s outlook remains clouded by external pressures, despite occasional pockets of domestic resilience.

Recent UK data showed stronger-than-expected retail sales, offering the pound brief support. However, broader risks continue to weigh heavily:

• U.S. Dollar Recovery: The greenback's rebound from deeply oversold levels puts renewed pressure on GBP/USD, especially as traders position ahead of key U.S. economic reports.

Trade Tensions and Fiscal Risks: Uncertainties surrounding U.S.-UK trade negotiations and the broader impact of global tariffs have raised concerns over UK growth prospects and fiscal health.

This external uncertainty is compounding domestic fiscal concerns:

• The UK government has already ramped up public spending to cushion the economy post-Brexit, leading to rising budget deficits.
• Slower trade and weaker external demand could further erode tax revenues while increasing reliance on fiscal stimulus.
• A combination of widening deficits and rising borrowing costs could put fiscal sustainability into question, especially if economic growth underperforms expectations.

In this environment, any additional shocks from stalled trade deals or escalating tariff threats could not only hurt the UK's economic outlook but also amplify downside risks for the pound, particularly against a recovering U.S. dollar.

• No clear resolution yet on U.S.-UK trade talks.
• Risks of fresh tariffs on UK exports remain alive.
• Rising public deficits could strain fiscal stability if growth weakens.
• GBP remains sensitive to both external trade risks and domestic fiscal pressures.

GBP Technical Outlook

Compared to Euro, Pound has a firmer and less volatile price action, which signals a steady upside move.

• Price remains comfortably above short-term moving averages, suggesting healthy bullish momentum.
• Small dips are quickly absorbed by buyers, indicating underlying demand and market acceptance at higher levels.
• Despite minor consolidation, GBPUSD has not broken lower, reflecting relative strength.
• Daily Fair Value Gap is also holding which also adds a bullish confluence for pound, holding its ground.

GBPUSD remains structurally bullish on higher timeframes but is currently caught in a 4-hour consolidation between 1.3350 and 1.3324.

Scenarios

Overall Comparison:

Key Red Folders For Both Pairs

Both currencies will remain sensitive to upcoming U.S. data (especially the NFP report and inflation numbers), but based on current price action, GBP/USD holds a tactical advantage over EUR/USD heading into early May.

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