Coverage
- U.S. economic momentum weakens with a negative Q1 GDP print, falling job openings, and mixed manufacturing data, while political pressure on the Fed adds to market uncertainty.
- Eurozone inflation ticks higher and GDP surprises to the upside, suggesting resilience; trade negotiations with the U.S. remain ongoing but fragile.
- Canadian economy contracts in February; industrial sectors lead the decline, while employment and sentiment data point to rising recession risks.
- Global trade tensions ease slightly, with China offering tariff exemptions and Europe pursuing negotiations, but geopolitical risks around Iran and Ukraine persist.
- ABCG Research maintains a bearish view on the U.S. dollar, bullish bias on EUR/USD (targeting 1.18–1.19), and forecasts CAD index to weaken toward 70–71 by quarter-end.
Overview
The past week brought a modest pickup in market activity compared to the previous one, though overall liquidity remained subdued as investors stayed cautious ahead of major interest rate decisions expected next week. The initially climbed on renewed inflation concerns but later retraced, ending the week flat amid mixed macroeconomic signals and ongoing geopolitical developments. traded within a tight range between 1.1310 and 1.1400, closing with a 0.79% loss, reflecting market indecision and cross-currency weakness. Meanwhile, the posted a 1.47% weekly gain, supported by stronger labor market data and China’s exemption of tariffs on select U.S. goods—offering temporary relief amid broader trade tensions.
Macro & Forecast
The latest macroeconomic signals from the U.S. painted a picture of rising uncertainty and cautious optimism. The March report showed that job openings fell to 7.2 million, edging closer to the September 2024 low. This decline, paired with stagnant hiring and increasing job quits, suggests companies are becoming more hesitant to expand amid policy instability. However, layoffs remained low, implying that while firms are pausing on growth, they’re not yet in crisis mode. Federal workforce downsizing also contributed to the drop in job openings, pushing public sector opportunities to their lowest since 2020.
At a broader economic level, the Advance Q1 report confirmed contraction in the U.S. economy. Much of the growth was artificially driven by inventory build up ahead of expected tariff escalations, while actual consumer spending remained sluggish at just 1.21%. Stripping out the volatile export and inventory categories, real GDP stood at 2.5% YoY—highlighting a slowing but not collapsing economy. On the manufacturing side, the slipped to 48.7, reflecting another month of contraction. New export orders and import activity also weakened sharply, largely attributed to trade disruptions. However, the surprised to the upside, with 177,000 jobs added versus the forecasted 138,000, giving a short-term boost to market sentiment.
On the political front, President Donald Trump once again criticized Fed Chair Jerome Powell, implying that he knew more about interest rates and hinting at dissatisfaction with Powell’s performance. While Trump clarified he doesn’t plan to fire Powell, his comments renewed concerns over the independence of the Federal Reserve—something investors are watching closely, especially if rate cuts resume. Trump’s ongoing pressure to lower rates combined with a mixed economic outlook has placed the Fed in a tight spot.
Meanwhile, China has quietly released a “whitelist” of U.S. goods exempt from its 125% retaliatory tariffs, a strategic move to cushion the blow of the trade war and maintain critical imports like aircraft engines, chips, and pharmaceuticals. While not officially announced, this back-channel communication signals Beijing’s desire to de-escalate without losing face. Adding to this, the People’s Bank of China is pushing the internationalization of the yuan, with cross-border payments hitting a record high in March as global trust in the dollar shows early signs of erosion.
In the foreign policy space, Trump took bold steps by initiating surprise nuclear talks with Iran, sidelining close ally Israel in the process. The talks aim to extract key concessions to halt Iran’s nuclear ambitions, but success is far from guaranteed. Further escalating tensions, Trump announced a full ban on the purchase of Iranian oil and petrochemical products, warning of secondary sanctions on any violators. This hardened stance adds another layer of risk to already fragile Middle East stability and global energy markets.
Forecast
The latest macroeconomic figures reinforce the view that the U.S. economy is continuing to cool. The advance GDP print revealed a contraction in the first quarter, but much of this was driven by forward purchasing ahead of tariff hikes—particularly on imports—which distorted the headline number. While the labor market appeared strong in April, we believe this strength is unlikely to hold. Job postings have declined, hiring intentions are weakening, and federal workforce downsizing is starting to take a toll.
As we’ve previously flagged, we had anticipated the temporary boost in manufacturing activity as businesses rushed to front-load orders before additional tariffs took effect. That momentum is now fading. Demand indicators such as New Orders, Export Orders, and Backlogs all fell deeper into contraction, while customer inventories remain low. Meanwhile, factory output continued to decline, reflecting a cautious stance among producers amid rising headwinds.
Geopolitically, while the U.S.–China trade war appears to be cooling, with Beijing quietly preparing an exemption list for critical U.S. imports, President Trump introduced fresh uncertainty by issuing an ultimatum over Iranian oil. His declaration that nations doing business with Iran will be barred from trading with the U.S. has once again dented investor confidence in U.S. assets and the dollar’s global standing.
The coming week is a critical moment for the dollar, as the Federal Reserve announces its rate decision. With economic data softening and political pressure mounting, the Fed finds itself in a precarious spot. We believe the Fed’s focus has shifted toward stabilizing the labor market, with inflation expectations already priced in. However, the ongoing scrutiny of Fed independence—especially after Trump’s repeated calls for rate cuts—raises the stakes. If the Fed were to reduce rates now (which we do not expect at this meeting but foresee in the near term), markets might interpret the move as politically influenced, potentially leading to sharp dollar weakness.
We maintain a bearish bias on the dollar for the remainder of this quarter and into the next. Stability may return only if political noise subsides and macroeconomic fundamentals are allowed to take the lead.
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Disclaimer: This report was prepared using publicly available data and with the assistance of artificial intelligence tools. The final content has been reviewed and approved by the macro analysts and research team at ABCG Research prior to publication.