The United States dollar endured broad losses last week, snapping a four-week winning streak as President Donald Trump reignited trade war concerns with fresh threats against the European Union.
The U.S. dollar index tumbled to a three-week low near 99.00, down sharply from recent highs near 102.00. Market optimism, driven by a temporary easing of trade tensions and a 90-day truce with China, faded rapidly after Trump proposed a 50% tariff on all EU imports beginning June 1, 2025.
He also floated the idea of a 25% levy on iPhones sold in the U.S.
This sudden reversal hit investor confidence, particularly as recent deals with the UK and China buoyed sentiment that the most severe of the trade disruptions was behind.
However, over the weekend, Trump agreed to an extension of the 1 June deadline following a phone call with European Commission President Ursula von der Leyen.
U.S. yields rose modestly across the curve, but failed to offset the pressure on the greenback, especially as Trump’s remarks raised new doubts about the administration’s fiscal trajectory.
Meanwhile, the House approved a sweeping tax cut package, which could add nearly $4 trillion to the national debt over the next decade, according to the Congressional Budget Office.
Euro Rebounds Above 1.1300
The euro initially fell below 1.1300 on Trump’s tariff announcement but quickly rebounded to 1.1350 as the dollar weakened.
U.S. Treasury Secretary Scott Bessent added fuel to the fire, stating EU proposals were “not of good quality”.
Despite speculation of an ECB rate cut in June, the euro found support in better-than-expected German GDP data and general weakness in the U.S. dollar.
Aussie Struggles Amid RBA Shift
The Australian dollar struggled to maintain early-week gains after the Reserve Bank of Australia cut interest rates by 25 basis points.
While the pair tested the December high of 0.6515, sentiment turned cautious after the RBA dropped its hawkish forward guidance.
Governor Michele Bullock signalled readiness to ease policy further if global conditions deteriorate.
With the U.S.-China trade outlook still uncertain, the Australian dollar remains vulnerable, though support near the April low of 0.5915 remains intact.
Cable Hits Highest Level Since 2022
The pound sterling surged to its highest level since February 2022, with the GBP/USD currency pair testing the 1.35 mark, supported by robust UK data and broad dollar weakness.
Retail sales rose 1.2% month-on-month in April, far exceeding expectations, while inflation, wages, and GDP also surprised to the upside.
April services inflation hit 5.4%, reinforcing the Bank of England’s cautious tone following its recent rate cut.
The BOE has avoided suggesting an accelerated easing pace amid persistent inflation pressures.
Yen Gain Drops on Safe-Haven Appeal
The yen strengthened against the dollar, with the USD/JPY pair dropping after Moody’s downgraded the U.S. credit rating over debt concerns.
Trump’s tax proposals added to fiscal anxieties, triggering risk aversion and lifting safe-haven demand for the yen.
Though the pair got a brief reprieve after reports that Japan and the U.S. agreed currency moves were market-driven, the broader outlook remains bearish.
Traders are watching upcoming U.S. business activity data closely; weak readings could reinforce expectations for a September Fed rate cut.
Economic Calendar Week Ahead:
On Monday, the U.S. financial markets will be closed for Memorial Day.
Tuesday brings a series of key U.S. data releases, including the S&P CoreLogic Case-Shiller Home Price Index for March and the Conference Board’s Consumer Confidence Index for May.
In addition, U.S. durable goods orders for April will be published. Federal Reserve Bank of New York President John Williams is also scheduled to speak.
Wednesday will see the release of Australia’s Monthly Consumer Price Index (CPI) indicator for April and second-quarter construction work figures.
The Reserve Bank of New Zealand (RBNZ) will announce its latest interest rate decision and hold a press conference.
In the U.S., the minutes of the Federal Reserve’s May FOMC meeting will be released, alongside a scheduled speech by Minneapolis Fed President Neel Kashkari.
On Thursday, South Korea’s central bank will announce its rate decision. Japan will publish its consumer confidence figures for May.
In the U.S., multiple reports are due, including initial jobless claims for the week ended 24 May, the first revision of Q1 GDP, and April’s pending home sales. Richmond Fed President Thomas Barkin is also slated to speak.
Friday features a packed schedule. Japan will report its unemployment rate and retail sales data, while Australia will release its building permits and retail sales figures.
In the U.S., reports on April's personal income, consumer spending, and the PCE price index - the Fed’s preferred inflation gauge - will be released.
Additional releases include the advance goods trade balance for April, the Chicago Business Barometer (PMI) for May, and the final reading of May’s consumer sentiment from the University of Michigan.
Looking ahead to Saturday, China will publish its official NBS manufacturing and non-manufacturing Purchasing Managers’ Index (PMI) readings for May.
