The US dollar remains supported ahead of the FOMC meeting, buoyed by renewed US-China trade dialogue, easing measures from the PBOC, and contrasting global central bank policy moves. Market participants expect no immediate action from the Fed, while emerging and developed markets show a mixed picture amid geopolitical tension and trade uncertainties.
Contents
- 1 Greenback Steadies Amid US-China Trade Revival
- 2 PBOC Eases as Chinese Yuan Shows Resilience
- 3 Euro Gains on Strong German Data, ECB Easing Still Expected
- 4 Emerging Markets Mixed: Brazil Hikes, Mexico Eyes Growth
- 5 Sterling Finds Support Amid Trade Hopes with US
- 6 Other Major Movers: JPY, CAD, AUD
- 7 About H2T Finance
Greenback Steadies Amid US-China Trade Revival
Financial markets are closely watching the rekindled trade talks between the US and China set to begin in Switzerland this weekend. While no major breakthroughs are expected, the move marks a thaw in relations, providing a stabilizing effect on the US dollar ahead of the Federal Open Market Committee (FOMC) policy announcement. Despite a bearish outside down day on Tuesday, the Dollar Index has traded in a narrow band between 99.30 and 99.60, keeping the broader G10 currencies under pressure.
The FOMC is widely expected to maintain the current policy rate, with Chair Jerome Powell likely reiterating that “the economy is in a good place.” While Q1 GDP data showed contraction, the market has shifted its expectation for the first rate cut from June to July, now pricing in almost three rate cuts for 2025.
PBOC Eases as Chinese Yuan Shows Resilience
China’s central bank, the People’s Bank of China (PBOC), moved to support domestic liquidity by cutting the seven-day repo rate by 10 basis points to 1.4% and reducing the reserve requirement ratio (RRR) by 0.5%, unlocking approximately CNY 1 trillion. Additional policies aimed at encouraging lending and refinancing have also been rolled out.
Despite the monetary easing, the offshore yuan (CNH) demonstrated resilience. After dropping nearly 1.1% last week, the USD/CNH pair stabilized around the CNH7.22 level, trading weaker offshore than onshore—suggesting minimal speculative pressure against the yuan. The PBOC’s daily fix continues to limit dollar gains, reflecting an intent to maintain exchange rate stability amid wider Asian currency volatility.
Euro Gains on Strong German Data, ECB Easing Still Expected
The euro briefly touched $1.1380, supported by better-than-expected German factory orders, which rose 3.6% in March—far exceeding the 1.3% forecast. This surge is likely the result of firms front-running potential US tariffs. Despite the positive data, the market still expects the European Central Bank (ECB) to cut rates at its early June meeting, with a smaller chance of another cut in July.
Eurozone inflation remains subdued, and with weak PMI figures across the bloc, policymakers remain dovish. Options expiry at $1.1400 (1 bln euros) added some technical resistance in the short term.
See more related articles: EUR/USD pulls back to 1.1323
Emerging Markets Mixed: Brazil Hikes, Mexico Eyes Growth
The Brazilian central bank is anticipated to raise its benchmark Selic rate by 50 basis points to 14.75%. While inflation risks persist, the market sees rates peaking soon before declining into 2026. Meanwhile, the Mexican peso has stabilized near MXN19.68 after earlier volatility. The country’s inflation data is due tomorrow, with expectations for headline CPI to remain below 4%.
Mexico’s central bank remains more concerned about flagging economic growth, having already slashed its GDP forecast for 2025 to just 0.6%. Additional pressure comes from US trade policy, which now prioritizes reshoring over traditional nearshoring and friend-shoring strategies that have benefited Mexico’s manufacturing sector.
Sterling Finds Support Amid Trade Hopes with US
The British pound has formed a base near $1.3260 and briefly crossed above $1.34 on news that the US and UK may sign a limited trade agreement, shielding British autos and steel from 25% tariffs. However, gains were capped by profit-taking, pulling GBP/USD back toward $1.3320.
The Bank of England meets tomorrow, with markets assigning over an 80% probability to a rate cut. Forward guidance and updated economic projections—previously estimating 0.8% GDP growth and 3.5% CPI for 2025—will be closely scrutinized.
Other Major Movers: JPY, CAD, AUD
- JPY: The yen has weakened from below JPY140 to above JPY143. The rebound comes despite Japan’s stagnant PMI data and low growth outlook. Key support sits near JPY142.00, with resistance around JPY144.00.
- CAD: The Canadian dollar touched a multi-month high against the USD, bolstered by strong gold and oil exports. However, tensions with the US and Trump’s dismissive rhetoric toward Canada weigh on sentiment.
- AUD & NZD: The Australian dollar posted a five-month high above $0.6500 before pulling back. The New Zealand dollar was also unable to breach resistance near $0.6030 and retreated to $0.5980.
As traders await the FOMC’s policy stance, broader global monetary trends show divergence. While China and several European nations move toward easing, Brazil tightens, and the Fed stands pat. The interplay of trade diplomacy, inflationary pressures, and economic growth concerns will continue to drive volatility across FX and equity markets.
