US Dollar (USD) losses of the past few weeks have been a combination of mounting US growth concerns and a loss of confidence in the dollar as a safe haven. The round of USD weakness seen on Easter Monday belongs to both trends. President Trump is intensifying pressure on Federal Reserve Chair Jerome Powell to cut rates 'now', threatening one of the foundations of the dollar’s appeal as a global reserve currency: an independent and inflation-responsible central bank. At the same time, many are speculating that Trump is looking to blame the Fed for the upcoming economic slowdown, which is a de facto admission by the administration that it is sharing the market’s recessionary fears, ING's FX analyst Francesco Pesole notes
Trump threatens dollar's safe-haven status
"There is a good chance Trump won’t (or won’t be able to) take any drastic measures, and Powell will stand his ground on keeping rates on hold until the tariff impact starts to show. It is equally likely that Trump will continue to intensify pressure to cut rates, considering the broad consensus for upcoming soft activity data. Let’s see what kind of pushback Fed members offer this week; for now, the OIS curve continues to price in close to zero chances of a cut in May."
"The reaction to Trump’s comments on the Fed indicates how sensitive markets are to the topic of Fed independence, and we believe this adds a new layer of bearish bias on the dollar. At the same time, we must acknowledge how oversold and undervalued the dollar is, and the possibility that yesterday’s drop was exacerbated by thinner liquidity. If the downside risks for the USD remain significant, the argument for stabilisation this week is quite persuasive."
"What seems quite likely is that FX volatility will remain elevated, even though the US data calendar is pretty light this week. The Richmond Fed manufacturing and Philadelphia Fed non-manufacturing indices are the highlight today, although tomorrow’s S&P Global PMIs should have the largest market impact."
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