April 22, 2025

“The market has come into this week incredibly nervous once again, and this time it is because of concerns that the Federal Reserve’s independence could be at risk. The euro has hit a three-year high and sterling is trading at its best since September.”

Tim Hallinan – Trading Director

USD

Trump sent the dollar into another nosedive yesterday by firing up investors’ concerns that he might move to unseat Powell as Chair at the Federal Reserve. After saying that his termination ‘cannot come fast enough’ in a Truth Social post last Thursday, he followed up by calling him a ‘major loser’ and called on him to cut interest rates ‘NOW’. Fed independence is the bedrock of the US (and global) financial system and the law does not technically permit Powell’s sacking – if Trump either finds a loophole to oust him, or simply tries to do so without legal basis, especially if it is in the aim of overriding the Fed and forcing a more dovish policy, we could be looking at a much more significant shock to the dollar. The irony of it all, of course, is that markets are now pricing less than a 10% chance for a rate cut in May, because policymakers will be keen not to look as if they are making a political decision. A more optimistic theory floating around is that Trump is laying the groundwork to scapegoat the Fed and Powell during any economic downturn – he can then point back and say that he called for rate cuts to prevent one, and none came. The five Fed speakers in the diary are the obvious focus today, and the main piece of data this week is tomorrow’s PMIs, where we will get a post-‘liberation day’ growth test.

GBP

The pound is heading for its best daily winning streak against the dollar since 1971, if it can finish higher today. It has gained for the last ten sessions straight and is trading at its highest level since September, having come within a whisper of a three-year high this morning. Of course, this remains a pure dollar story only – although sterling has been steadily catching up to the euro over the last week or so, GBP/EUR is still down 4% this year. This week, look out for tomorrow’s PMI data, a speech from Governor Bailey, and retail sales on Friday.

EUR

The euro remains a big beneficiary of ‘sell America’ investment capital flows, with EUR/USD hitting 1.15 for the first time since 2021. The ECB decision on Thursday was relatively dovish – ‘liberation day’ rallied policymakers around a unanimous cut and a 50bps move was briefly discussed – but that had relatively little impact on euro strength as the market continues its focus on risk dynamics and the shifts in the global economic order emanating out of the US. Rate differentials were dominant throughout last year, but they have very little power in the current market.

Markets

US equities took another tumble yesterday as markets panicked about the future of the Fed’s independence and the persistent uncertainty, and European stocks have followed suit this morning. Some big earnings releases are due this week, beginning with Tesla, SAP, and Bank of America today.

Main Economic Events (All Times CET)

4:00pm: Eurozone Consumer Confidence

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