Market Drivers- US Session: Dollar Climbs as BoJ Anticipated to Hold Steady, Trade Tensions Ease

The US Dollar Index (DXY) surged to two-day highs near 99.70, driven by fading US-China trade tensions and lackluster US economic data. With markets largely shuttered for the May 1, 2025, Labour Day holiday, the dollar’s rally underscores shifting investor priorities. The Federal Reserve faces a critical juncture, needing to address economic weakness while maintaining global confidence. Precision in policy is vital to avoid destabilizing markets.

Dollar Rides Wave of Weak Data

Disappointing US data releases amplified the dollar’s safe-haven appeal, pushing the DXY higher despite uneven Treasury yields. Scheduled May 1 data, including Initial Jobless Claims, Challenger Job Cuts, the final S&P Global Manufacturing PMI, the ISM Manufacturing Index, and Construction Spending, will shed light on economic health after recent underperformance. Easing US-China trade friction, fueled by renewed diplomatic talks, bolstered the dollar, though concerns about global growth linger.

Global Currencies Feel the Heat

The euro weakened, with EUR/USD slipping to the low 1.1300s under the dollar’s strength. Eurozone focus shifts to the final HCOB Manufacturing PMI for Germany and the broader bloc, plus preliminary inflation and unemployment figures, which will guide European Central Bank expectations amid uneven price pressures. GBP/USD fell to two-day lows near 1.3300, reflecting a broader risk-off mood. UK data, including Mortgage Approvals, Mortgage Lending, and the Bank of England’s M4 Money Supply, will steer sterling’s course.

In Asia, USD/JPY broke past 143.00 as the yen faltered. The Bank of Japan, expected to maintain unchanged rates, draws attention with the Jibun Bank Manufacturing PMI and Consumer Confidence data. AUD/USD hovered near 0.6400, tied to US-China trade developments. Australia’s final S&P Global Manufacturing PMI, trade balance, and Q1 import/export prices will shape the Aussie dollar’s trajectory.

Commodities Signal Caution

WTI oil prices dropped to $58.00 per barrel, despite a sharper-than-expected decline in US inventories per the EIA, as supply increase fears dominated. Gold fell to $3,270 per ounce, pressured by the stronger dollar and reduced trade concerns. Silver hit multi-day lows near $32.00, mirroring the cautious sentiment. These moves highlight the dollar’s sway and market sensitivity to trade and growth cues.

Chair Jerome Powell and the Fed face a high-stakes balancing act. Soft data could argue for a rate hike pause, but inflation risks demand caution. The 2018 trade war volatility serves as a warning: policy missteps can escalate uncertainty. With holiday-thinned trading and global supply chain complexities, policymakers must deliver data-driven decisions, countering calls for aggressive tightening with measured stability.