The United States Dollar index (DXY) posted its first weekly gain since mid-March, recovering from three-year lows last week.
Signs of a potential thaw in U.S.-China trade tensions gave the dollar much-needed support. China offered tariff exemptions on certain U.S. goods and encouraged businesses to seek relief, prompting optimism that the trade battle might be cooling.
President Trump fueled hopes of progress by suggesting direct talks with President Xi were underway, though Beijing disputed the claim. While concrete details remain scarce, market sentiments have shifted toward cautious optimism, lifting the dollar off its lows.
Euro Holds Steady Ahead of GDP Data
The Euro remains resilient, defending weekly lows ahead of the Euro Area GDP report. The rangebound price action could prove temporary, as the pair fulfilled a cup-and-handle formation earlier this month and may continue to track a bullish trend aligned with its moving average.
Looking ahead, the Euro Area's GDP report is forecast to show 0.2% growth in the first quarter of 2025. A positive outcome could bolster the Euro by reducing expectations for further ECB rate cuts.
However, a weaker-than-expected GDP reading may pressure EUR/USD lower, reinforcing speculation about additional monetary easing.
Aussie Dollar Consolidates After Fresh High
The Australian dollar’s recovery is stalling after touching four-month highs last week.
Upcoming Australian economic data could spark volatility, with the Consumer Price Index (CPI) expected to show inflation easing slightly.
The Reserve Bank of Australia (RBA) has pledged to base future decisions on data and risk assessments. Forecasts suggest a 2.2% rise in annualised inflation, down from 2.4% in the previous month.
A softer CPI outcome could prompt the RBA to further unwind restrictive measures, weighing on AUD sentiment.
Sterling Slips Despite Strong Retail Sales
Sterling weakened against the stronger U.S. dollar despite a robust UK retail sales report. Data from the ONS showed a 0.4% monthly increase in retail sales, surprising economists who had forecast a 0.4% decline.
Year-on-year, retail sales rose by 2.6%, well above the expected 1.8%.
Despite the strong figures, traders remain confident the Bank of England will cut rates by 25 basis points at its May policy meeting.
Meanwhile, optimism around UK-U.S. trade discussions grew as Shadow Chancellor Rachel Reeves met U.S. Treasury Secretary Scott Bessent to advance a "prosperity deal".
Yen Softens as US Dollar Rebounds
The USD/JPY pair rose by 1.1% last week as positive trade developments helped reverse the U.S. Dollar’s four-week losing streak.
Looking ahead, market attention shifts to key Japanese economic releases and the Bank of Japan’s monetary policy meeting.
Japanese retail sales, due Wednesday, are forecast to show 3.5% growth year-on-year in March, up from 1.4% in February. Stronger private consumption could boost speculation about a mid-2025 BoJ rate hike.
Thursday’s BoJ policy decision and quarterly economic outlook will be pivotal, with markets widely expecting rates to remain at 0.5%. A dovish or cautious tone could trigger renewed USD/JPY volatility.
This Japanese labour market data on Friday, including the jobs-to-applicants ratio and unemployment rate, will provide further clues about domestic economic resilience.
Key Economic and Earnings Events for the Week Ahead
The week kicks off Monday with Canada’s federal election, a key political event that could ripple across North American markets.
On Tuesday, the focus will turn to a range of economic releases, including the EU’s economic sentiment indicator, the U.S. goods trade balance, wholesale and retail inventories, CB consumer confidence, and the JOLT's job openings report, offering insights into both the European and American economies.
Wednesday brings a heavy schedule with Japanese industrial production and retail sales, Australia’s CPI release, Chinese NBS and Caixin manufacturing PMIs, UK nationwide housing prices, and the Euro Area’s first-quarter GDP growth reading.
In the U.S., attention will focus on the ADP employment change report, GDP growth figures, the core PCE price index, and personal income and spending data.
Corporate earnings will also dominate headlines, with Meta Platforms set to report first-quarter results after market close, alongside Microsoft, Visa, and Mastercard.
Thursday sees Australia’s balance of trade numbers and the Bank of Japan’s interest rate decision, coupled with Japanese consumer confidence data.
In the U.S., initial jobless claims and the ISM manufacturing PMI will provide fresh indicators of labour market and industrial health.
After the U.S. session closes, heavyweight earnings reports from Apple and Amazon will be in sharp focus, setting the tone for the tech sector.
On Friday, investors will digest inflation data from South Korea and Australia, alongside Australian retail sales figures. In Europe, the Euro Area's CPI and unemployment data will be released, while in the U.S., the highly anticipated April nonfarm payroll report, average hourly earnings, and the unemployment rate are due at 8:30 a.m. ET.
