Two major factors are driving the US dollar’s recovery. Firstly, markets remain uncertain whether recent tariffs are part of genuine trade negotiations. President Trump’s openness to “phenomenal offers” reinforces this idea. However, the imposition of tariffs on Israel—despite it eliminating its own—adds complexity. Secondly, traders may be adjusting positions ahead of the upcoming US employment data. While surveys suggest labor market weakness, hard data like jobless claims show resilience. Any remarks by Fed Chair Powell following the jobs report could add volatility, although he’s unlikely to respond directly to stock market swings, distancing himself from the so-called “Fed put.”

Asia Pacific Markets

In Japan, the yen surged alongside the Swiss franc, benefiting from its status as a traditional safe haven during times of market stress. The US dollar dropped from near JPY149.30 to about JPY145.20, driven by a dip in US yields and stock market declines. Despite stable inflation and rising wages, Japan's consumption remains subdued, as household spending declined again in February.
Meanwhile, Australia’s dollar experienced sharp fluctuations, testing the lower end of its two-cent range. Although household spending rose slightly in February, markets expect a rate cut from the Reserve Bank of Australia in May, especially if economic momentum weakens further.

European Markets

The euro initially spiked but later dropped below $1.10 due to disappointing German factory orders and cautious trading ahead of US jobs data. Germany’s orders remained flat, missing expectations for a rebound, while France and Spain showed modest industrial growth. Italy’s retail sales data suggested stagnation. The euro also gained against sterling, approaching yearly highs, even as both were hit with US tariffs.
The UK’s construction sector continues to struggle, reflected in the March PMI staying below the growth threshold. Overall, European equities remain under pressure, with the Stoxx 600 index down significantly since its March peak.

American Markets

The US dollar experienced a sharp sell-off, with the Dollar Index plunging nearly 1.7%—its worst drop since November 2022. After falling from near 104.30 to around 101.25, it rebounded modestly. The index’s move beyond three standard deviations from its 20-day average indicates an extreme event. Market sentiment remains mixed, with strong household net worth and GDP supporting claims of US economic strength. Despite soft labor market indicators in surveys, actual job data remains solid. Attention is now focused on March’s employment report and Powell’s upcoming speech, which could confirm market expectations of a rate cut as early as June.