Market Analysis

Sterling Leads the Way as Dollar Takes a Breather

Mellissa · 16 Apr108.2K Views

Image Credit: Reuters

The dollar maintained a modest bounce on Wednesday as investors took a pause from weeks of heavy selling, with markets stabilizing while awaiting updates on U.S. trade talks. Chinese first-quarter GDP data and March economic indicators were due, though they would reflect past conditions, and U.S. Federal Reserve Chairman Jerome Powell was scheduled to speak. The Bank of Canada was also set to meet, with a 40% chance of a rate cut.

The Canadian dollar remained strong at C$1.3948 per U.S. dollar, rising 4% in April, illustrating how trade policy has rattled investor confidence in the U.S. dollar. Meanwhile, the euro, which hit a three-year high last week, eased from its peak of $1.1474 to trade at $1.1311 in early Asia trading. Despite a 4.5% increase this month, it was due for a pullback, with little indication of progress in avoiding U.S. tariffs.

Sterling stood out, reaching a six-month high at $1.3254, as Britain faced fewer U.S. tariffs, and U.S. Vice President JD Vance suggested a trade deal with the U.K. could be likely. British CPI data was also expected later in the day.

The yen held steady at 142.85 per dollar, and the U.S. dollar index, which briefly rose above 100, hovered just below that level at 99.899. The Swiss franc, which had strengthened since Trump’s tariff announcement, was also firmer at 0.8184 per dollar. The Australian and New Zealand dollars, after strong rises last week, slightly retreated, with the Aussie at $0.6334 and the kiwi at $0.5896.

Attention was on China’s data, Powell’s speech, and other economic releases. However, the direction of the dollar and other currencies largely hinged on the bond market and the yuan. The yuan's trading band had been only slightly weakened by tariffs, but any sharp devaluation could boost the dollar. The U.S. Treasury market, which had faced panic selling last week, showed signs of steadying, and analysts anticipated a return to the historical correlation between U.S. Treasury yields and the dollar.

Steve Englander from Standard Chartered noted that a return to higher U.S. Treasury yields could support the dollar, with a reduced focus on tariffs potentially renewing USD strength.