Dollar rise

What’s happening :- The US dollar recorded gains on Wednesday amid optimism around averting a trade war.

What happened :- The Trump administration said it was considering reducing tariffs on goods imported from China.Investor sentiment was also supported by US President Donald Trump stating that he has no intention of firing Federal Reserve Chairman Jerome Powell.

Why it matters :- The US President signalled a shift in his tariff strategy for China, saying that the high tariff rates imposed may be significantly lowered if an agreement is reached.Trump has announced 145% tariffs on goods imported from China and threatened to take the rate to a whopping 245%. In an unexpected change of stance, Trump said on Tuesday, “It won’t be anywhere near that high. It’ll come down substantially. But it won’t be zero.”US Treasury Secretary Scott Bessent also indicated that there could be a substantial reduction in tariffs on China, which could ease trade tensions between the world’s two largest economies.Investors gained confidence in the US dollar, which had recently hit a three-year low due to the Trump administration’s erratic moves and fears of high tariffs pushing the US economy into recession.

US trade war fears

Investors had also been concerned about the Fed’s independence following verbal attacks by the US President on Powell for not lowering interest rates since January. Markets welcomed another change in Trump’s stance as he said, “I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates.”Meanwhile, data released on Wednesday showed the S&P Global US manufacturing PMI climbed to 50.7 in April, from 50.2 in the previous month. The figure also topped market estimates of 49.1. Although US services PMI declined to 51.4 in April, from 54.4 in the previous month, services activity remained in the expansion zone.

Is the dollar falling due to US trade war fears?

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.3% to 99.84 on Wednesday.The USD/JPY forex pair jumped around 1.3% to 143.44. The EUR/USD lost more than 0.8% to reach 1.1315 on Wednesday, after hitting a 3.5-year high earlier this week.

What to watch :- Investors await the release of economic data on Chicago Fed National Activity Index (1630 UAE Time), initial jobless claims (1630 UAE Time) and existing home sales (1800 UAE Time) from the US today. New orders for manufactured durable goods, which rose by 0.9% to $289.3 billion in February, are expected to grow by 2% in March. US initial jobless claims, which declined by 9,000 to 215,000 in the second week of April, are expected to rise to 221,000. Analysts expect existing home sales in the US to decline 3% in March, following a 4.2% rise in February.

The euro fell

The euro fell 0.20% to $1.0462, the pound sterling fell 0.13% to $1.2607, the Swiss franc fell 0.19% to $1.108, and the US currency rose 0.26% against the Japanese yen to 151.90 yen.The dollar's recovery came against the backdrop of global trade tensions stemming from US President Donald Trump's policies and threats to impose tariffs on all of Washington's trading partners.Last week, he directed his presidential team to study the application of a matching tariff on all countries that target US products with tariffs or trade and regulatory restrictions, and to submit a report to him by April 1.The uncertainty surrounding the Federal Reserve's monetary policy outlook this year has contributed to the greenback's support, as official data released last week showed consumer prices rising at their fastest pace in nearly 18 months in January.This follows statements by Federal Reserve Chairman Jerome Powell last week, in which he said the US central bank was in no hurry to cut interest rates.