The U.S. dollar rose Wednesday, continuing the previous session’s sharp rebound after President Donald Trump backed away from his criticism of Federal Reserve Chairman Jerome Powell, while trade tensions between the U.S. and China also lessened.
At 04:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, gained 0.3% to 98.960, after it had jumped from the three-year low seen in early trade Tuesday.
Trump retreats from Powell threat The dollar has received a boost after Trump rowed back on some of the recent vitriol he has aimed at Fed head Powell for not cutting interest rates as quickly as the president has wanted.
"I have no intention of firing him," Trump told reporters in the Oval Office on Tuesday. "I would like to see him be a little more active in terms of his idea to lower interest rates."
Trump had indicated last week that he wanted to replace the Fed head, threatening the independence of the U.S. central bank, one of the foundations of the dollar’s appeal as a global reserve currency.
Trump also expressed optimism over potential trade negotiations with China, saying a potential deal could lead to a “substantial” reduction in tariffs.
Treasury Secretary Scott Bessent added to the positive mood, saying the current tariff situation is “unsustainable” and he expects a de-escalation in the near term.
“We could witness a period where the dollar is tossed around by headlines of Fed independence risk and market-friendly news on U.S. tariff policy. What is clear by now is that no other G10 currency has a higher positive beta to trade news than the dollar,” said analysts at ING, in a note.
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Euro hands back some gains In Europe, EUR/USD traded 0.3% lower to 1.1394, with the single currency retreating from the over three-year high against the dollar seen at the start of the week.
Also weighing was data showing that business activity in Germany’s private sector has contracted this month, with the German flash composite Purchasing Managers’ Index, compiled by S&P Global, falling to 49.7 in April from 51.3 in March, its lowest point since December, and back below the 50.0 threshold that separates growth from contraction.
“We know the ECB is looking at tariffs with greater concern from a growth perspective relative to inflation,” said ING, “so a soft read should further endorse the market’s dovish pricing (75bp of additional cuts by year-end).”
“That said, EUR/USD remains almost entirely a function of USD moves. And another leg higher above 1.15 remains possible should fears about the Fed’s independence take centre stage again.”
GBP/USD edged 0.1% lower to 1.3314, ahead of the latest PMI data from the U.K..
“Unlike the ECB, these surveys are not particularly regarded by the Bank of England, which remains fundamentally more concerned about inflation. Later this week, we’ll see U.K. retail sales figures for March, which are expected to drop following March’s strong print,” ING added.
Yen slips after manufacturing PMI weakness In Asia, USD/JPY traded 0.2% higher to 141.75, after two days of sharp declines.
Data on Wednesday showed that Japanese manufacturing activity shrank for the tenth consecutive month in April as new orders declined significantly amid U.S. tariff concerns.
The au Jibun Bank manufacturing PMI came in at 48.5 in April, below the forecast of 48.7.
Meanwhile, Japanese services activity rebounded, with the au Jibun Bank services PMI rising to 52.2 in April, from a neutral reading of 50.0 in March.
The overall composite PMI expanded to 51.1 in April from 48.9 in March.
USD/CNY traded 0.3% lower to 7.2963, with the Chinese currency helped by Trump expressing optimism over potential trade negotiations with Beijing.
