Return of the US Dollar (USD) after a challenging stretch. It came under intense pressure from mounting concerns about a looming recession due to the American-made trade war with China. This latest boom has led to extreme volatility in important currency pairs. In contrast, the EUR/USD has recovered towards the 1.1300 area. This reversal in sentiment has been triggered as investors responded to last week’s hawkish rhetoric, alongside fresh economic signals providing a boost to the USD bullish narrative.
During the last few weeks, the US–China trade war intensified. Both countries imposed exorbitant new tariffs on their adversary’s products. The recent escalation in the trade war has resulted in increased worries over the stability and growth of the domestic economy. Consequently, fears of a US recession are increasing. Director of the National Economic Council Kevin Hassett allayed these fears by saying that he doesn’t expect a recession in the near future. It was this last comment that was greeted with relief by so many. His remarks were seen as bullish for market sentiment, contributing strongly to a turnaround in the USD Index.
The USD Index is an index that reflects the dollar’s value against a basket of foreign currencies. After hitting a nearly three-year low of 99.00, the index made an impressive comeback. The dollar got a boost from that rebound that may be quite the double-edged sword. Consequently, the AUD/USD pair has fallen, turning around its intraday advance during North American trading hours. The AUD/USD dropped from 0.6340s at the high to about 0.6280 as traders adjusted to the dollar’s comeback.
The recently released US Retail Sales data for March is forecast for a robust 1.4% jump. That would be a huge increase compared to the just 0.2% increase that was reported for February. This anticipated growth could signal strengthening consumer demand, supporting the notion that the US economy is on a stable path despite trade tensions.
And that brings us to the second key update from those US employment report, plus retail sales data combined. It is projected to report that the unemployment rate has increased to 4.2%, an uptick from February’s 4.1%. This small increase is concerning. We need to understand it in the wider lens of overall economic success and labor market conditions.
Market analysts have noted that it is in this context that the US is currently seeking make-way on tariff negotiations with the Eurozone. The clouds are forming on its trade relationship with China. US and Eurozone are very close to making enormous progress on tariffs discussions. Yet the escalating trade war with China continues to be a huge unpredictable downside risk to the US economy.
Under President Donald Trump, the market’s focus on tariff policy has been heightened. In sign that more changes are still coming, as negotiations push into legislative day 45, he said “No one is out of the woods.” This declaration represents a powerful vision. The administration is doing yeoman duty to keep a very complicated set of bilateral trade relations from totally wrecking both the domestic and international markets.
In the face of these mounting pressures, financial markets seem to be somewhat optimistic about the dollar’s path to recovery. The USD is enjoying good upside momentum, suggesting short-term stabilization. Other economic indicators are beginning to point a more positive picture for US consumers and businesses alike.