By Noam Bennaiche
The US dollar is trading cautiously this morning as markets digest an exceptionally busy end to April, when a divided Federal Reserve, signs of stagflation in the US, and policy decisions from the Bank of England and ECB all arrived within 48 hours.
The Fed’s April meeting proved more dramatic than expected. The FOMC held the benchmark funds rate in a range of 3.50%–3.75%, marking one of the most divided outcomes in recent years. Three dissenters (Hammack, Kashkari, and Logan) supported holding rates but opposed retaining an easing bias, signalling the next move could be higher. A fourth, Governor Miran, favoured an immediate cut. Chair Jerome Powell indicated he intends to remain on the Board of Governors after his term as chair ends on 15 May, with his term as a governor running until January 2028. With Kevin Warsh’s nomination reportedly advancing, attention is shifting to how a post-Powell Fed will function and whether a fractured committee can regain consensus.
Sterling has held up relatively well. Both GBP and EUR have broadly recovered against the dollar, supported by improved risk sentiment and resilient UK data. GBP/USD has traded between 1.3460 and 1.3640 over the past week. The Bank of England held rates at 3.75%, which is supporting sterling for now. Policymakers focused on the scale and persistence of the Middle East energy shock, stressing that policy remains state contingent.
The euro has had a more mixed performance. The ECB also held its deposit rate at 2.00%, citing both upside inflation risks and downside growth risks. Flash data showed eurozone inflation rising to 3.0% in April, largely due to energy. EUR/USD traded near 1.1730 post-decision, while GBP/EUR hovered around 1.1580.
Today’s data calendar is relatively light. Focus will be on the ISM Services PMI for April, offering the first post-FOMC read on the US service sector and a signal ahead of Friday’s Non-Farm Payrolls. JOLTS job openings are also due, with any signs of labour market softening closely watched amid the Fed’s inflation-employment trade-off.
Looking ahead, Friday’s Non-Farm Payrolls will be the key event. After March’s stronger-than-expected 178k, another solid reading would further complicate the Fed’s position, with strong employment alongside elevated inflation limiting policy flexibility.
Overall, the dollar’s near-term outlook is highly uncertain. A hawkish inflation backdrop, a divided Fed, and an imminent leadership change create a challenging environment for pricing. Sterling remains stronger, supported by the BoE’s relatively firm stance, while the euro remains pressured by weak growth and a difficult policy trade-off. Speak to a member of our consultant team today to help make your money go further.
Tuesday, 5 May – Key Events
USD – ISM Services PMI (Apr), 15:00 GMT
USD – JOLTS Job Openings (Mar), 15:00 GMT
EUR – ECB President Lagarde speech, 13:30 GMT