North American FX Open - Risk aversion wanes further after Trump calms Powell rhetoric

The Dollar was given a further boost in the early part of the Asian session when President Trump declared that he has no intention of firing Fed Chair Powell. The DXY spiked to 99.612 on the pronouncement, compared to Monday's lows down at 97.921. Trump did add by way of a hint, that he would like Powell to be a little more active in terms of lower interest rates.

In response to yesterday's talk from US Treasury Secretary Bessent that the tariff standoff with China cannot be sustained by both sides and that the world’s two largest economies will have to find ways to de-escalate, China stated that the US can't say it wants a deal while exerting extreme pressure at the same time. The Chinese foreign ministry added that "this is not the right way to deal with China and is not feasible" and they called on the US to "conduct dialogue with China on the basis of equality and mutual benefit."

After yesterday's rebound in US equity markets further gains look likely, with the S&P 500 futures currently up 2.3%.

Elsewhere, the data focus was on the flash PMIs for April. Australia's numbers fell across the board, while in Japan the opposite was true, with the composite reading rising to 48.9 from 51.1.

Onto Europe, French and German readings came in lower than expected in the composite readings, while the Eurozone miss was much smaller with the composite easing to 50.1, just below the 50.2 consensus forecast.

The real surprise was the weakness in the UK numbers, with the all important services sector number falling to 48.9 from 52.5, way below the 51.5 consensus forecast. It was the lowest services reading since January 2023. in other bad news out of the UK, the March public finances figures revealed borrowing of Gbp 151.9bln in the 2024/25 financial year, Gbp 14.6bln more than the OBR forecast just a month ago. The close on Gbp 15bn borrowing overshoot is quite a miss by the OBR forecast wise in just over a month. As Lloyds pointed out, this underlines the issues the UK government will face with public finances, but also that if the OBR was off in its short-term outlook, what does it say about the rest of the financial year when its growth forecasts were already considered too rosy?

In other data the EZ trade surplus for February came in at Eur 21bln compared to the consensus forecast for a surplus of Eur 15bln.

US data today includes their own flash PMIs for April and new home sales for March.

A whole host of central bank speakers are scheduled today, including the Fed's Goolsbee, Musalem, Waller and Hammack. Other central bank speakers include the ECB's Knot, Villeroy, Lane and Cipollone, the BoE's Bailey and Breeden, as well as the RBA Governor Bullock.

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