- Data on Monday revealed that US business activity jumped in March.
- The dollar rebounded last week after a cautious FOMC policy meeting.
- Experts forecast a stronger dollar if Trump imposes more tariffs in April.
Currency futures eased on Monday as the dollar strengthened after upbeat US business activity data. At the same time, risk appetite fell as market participants gear up for more Trump tariffs in April. The outlook for the global economy remains dim amid escalating trade wars.
Data on Monday revealed that US business activity jumped in March. The flash composite PMI that measures activity in the manufacturing and services sectors increased from 51.6 to 53.5. This surge gave the dollar a boost against its peers. However, the report also revealed weaker consumer sentiment amid worries over the impact of Trump’s tariffs on the economy.
Meanwhile, currency futures fell on Friday as the greenback ended the week strong. The US currency rebounded during the week after the FOMC policy meeting. The Fed kept interest rates as expected and emphasized that there was no need to rush rate cuts. This cautious tone came despite recent data showing a slowdown in the economy and softer-than-expected inflation.
Dollar (Source: Bloomberg)
Furthermore, experts forecast a stronger dollar if Trump imposes more tariffs in April. Market participants expect tariffs on Canada, Mexico, and automobiles. Additionally, Trump has promised a reciprocal tariff that will affect more countries. These tariffs will increase the cost of imported goods, increasing US inflation. Therefore, the Fed will have to keep interest rates at elevated levels. However, the tariffs might also tip the US economy into a recession, hurting the greenback.
The yen fell last week after the Bank of Japan kept interest rates unchanged and assumed a cautious tone. The BoJ joined other major central banks in calling for patience amid uncertainty regarding Trump’s tariffs. Recently, market participants were concerned about the impact of these tariffs on Japan’s export-reliant economy. However, on Monday, Ueda said the central bank would keep hiking rates if inflation continues rising.
Meanwhile, the Canadian dollar fell on Friday after downbeat retail sales data. Sales in Canada fell by 0.6% compared to expectations of a 0.4% drop. At the same time, traders are worried about a 25% tariff on Canada that might take effect in April. The economic impact could force the BoC to implement more rate cuts.
The pound had a brief rally last week after eight BoE policymakers voted to keep rates unchanged, above the estimates of seven.
