U.S. dollar Index strengthens as Fed clears policy outlook and U.S.-China tensions ease; euro, yen, and aussie react
The U.S. dollar regained ground on Wednesday after President Donald Trump offered reassurances on two fronts that had previously rattled markets: his stance on Federal Reserve Chair Jerome Powell and trade relations with China. The dollar index rose to 99.60 from a three-year low of 98, helping EUR/USD and AUD/USD pull back from recent highs and lifting USD/JPY above the 142 handle.
Speaking on Tuesday, Trump clarified he had no plans to remove Powell, backing away from comments that had fueled concerns over the Fed’s independence. “No, I have no intention of firing him. I would like to see him be a little more active in terms of his idea to lower interest rates,” Trump said. In parallel, U.S. Treasury Secretary Scott Bessent signaled that the tariff conflict with China is “unsustainable,” raising hopes of eventual de-escalation.
EURUSD, USDJPY & AUDUSD price dynamics (Source: TradingView.)
EUR/USD slips below 1.1400 as Eurozone PMI disappoints
The euro retreated to 1.1380 after briefly hitting a multi-year high at 1.1575 earlier in the week. The move was driven by both a stronger dollar and disappointing PMI data from the eurozone. The Hamburg Commercial Bank's April Services PMI dropped to 49.7, pushing the Composite PMI down to 50.1. These readings, combined with dovish commentary from ECB officials including Christine Lagarde, have firmed up expectations of a rate cut in June. Technically, EUR/USD lost traction after failing to hold above 1.1500, with support now seen near 1.1276 and resistance at 1.16.
Yen slips on improved risk sentiment; AUD rallies on domestic strength
The Japanese yen weakened to around 142 per dollar, reversing part of Tuesday’s gains. Optimism around U.S.-China trade developments and fading concerns about Fed independence encouraged risk-on sentiment, reducing demand for the safe-haven yen. Meanwhile, the Australian dollar bounced back to 0.64, aided by strong April PMI data. Australia’s private sector posted a seventh straight month of expansion, driven by growth in both manufacturing and services sectors.
In prior coverage, we noted that EUR/USD’s rally had shown signs of overextension above 1.1500, while USD/JPY was positioned for volatility around key trade and Fed headlines. With today’s developments, those forecasts hold, as sentiment remains data- and headline-dependent.
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