Forex Market Update: U.S. Dollar Slips on Economic Concerns Ahead of Fed Decision
The U.S. dollar continued its downward trend on Monday, nearing a five-month low as concerns over the Trump administration’s tariff policies fueled fears of an economic slowdown.At 08:05 ET (12:05 GMT), the Dollar Index, which measures the greenback against six major currencies, slipped 0.2% to 103.162, inching closer to last week’s five-month low.
Tariff Worries Weigh on the Greenback
The dollar has weakened by nearly 5% this year, with investor sentiment shaken by the potential fallout from sweeping trade tariffs. On Friday, data revealed that consumer confidence plunged to its lowest level in two and a half years, further adding to market concerns.
U.S. Treasury Secretary Scott Bessent cautioned on Sunday that a recession in 2025 remains a possibility, stating in an interview with NBC that there are “no guarantees” of economic stability. Just last week, President Donald Trump also refrained from ruling out a potential downturn.
Investors are now closely watching U.S. retail sales data, set for release later today, as well as Wednesday’s highly anticipated Federal Reserve interest rate decision.
"While no major policy shifts are expected, the Fed’s tone could offer insight into future rate cuts," analysts at ING noted. "If the Fed maintains its projection of just two 25bp rate cuts this year, the dollar could see a slight rebound."
Euro Gains on German Fiscal Expansion
The EUR/USD pair climbed 0.2% to 1.0907, reaching its highest level since October, as investors reacted to Germany’s proposed infrastructure spending plan.
On Friday, German lawmakers reached a fiscal agreement aimed at boosting defense funding and economic growth, a move that analysts believe could push EUR/USD towards the 1.0930-1.0950 range in the near term.
However, ING analysts cautioned that the euro may face headwinds in April if the U.S. proceeds with reciprocal trade tariffs, predicting a EUR/USD trading range between 1.05 and 1.10 for Q2.
Pound Rises Ahead of BoE Decision
The GBP/USD pair gained 0.3% to 1.2970, buoyed by broad dollar weakness ahead of the Bank of England’s policy meeting on Thursday.
The BoE is expected to keep rates steady, following an uptick in inflation last month. Market pricing currently suggests 53 basis points of rate cuts this year, though ING anticipates a more aggressive 75bp reduction.
"A key factor in the BoE’s stance could be next week’s Spring Statement from UK Chancellor Rachel Reeves," ING analysts said. "Ongoing discussions about government spending cuts may weigh on the pound in the near term."
Yen Holds Steady Before BoJ Meeting
In Asia, the USD/JPY pair edged 0.1% lower to 148.47, as traders anticipated the Bank of Japan’s policy announcement later this week. While inflation remains elevated, the BoJ is widely expected to keep its interest rate at 0.5%, citing concerns over potential trade conflicts stemming from U.S. tariffs.
Meanwhile, USD/CNY dipped 0.1% to 7.2312, as China unveiled a "special action plan" on Sunday aimed at boosting domestic consumption and stimulating economic growth.
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