Markets search for direction as ECB flags uncertainty, Trump targets Powell again

Markets entered Tuesday’s session in consolidation mode, with the US Dollar failing to recover from its multi-day decline and European currencies struggling to build momentum. While economic data remains light ahead of Wednesday’s PMI releases, investor focus shifted toward central bank communications and renewed political volatility from Washington. The result: a cautious and uncertain trading environment as both EUR/USD and DXY trade in narrow ranges.

Kazimir warns: US trade policy driving persistent global uncertainty

In a notable speech Tuesday, European Central Bank policymaker Peter Kazimir stated that uncertainty in the macroeconomic outlook is "here to stay," driven largely by U.S. trade policy volatility. Kazimir also reiterated confidence in reaching the ECB’s 2% inflation target “in the next few months,” and stressed that the current deposit rate is now within the "neutral range."

However, he provided no indication about the direction of the next policy move, reiterating that the June rate decision would remain fully data-dependent. This reinforces the ECB’s broader messaging in recent weeks — that flexibility remains paramount amid a shifting global policy landscape.

“There’s no pre-committed path,” Kazimir noted, citing the need to assess incoming data, risk factors, and updated forecasts before the June decision.

Despite the tone, markets appeared unfazed by the remarks. At the time of his comments, EUR/USD was down 0.3% on the day, trading near 1.1475.

US Dollar drifts near three-year lows as Trump reignites Fed feud

The US Dollar Index (DXY) was flat on the day but remains deeply depressed after Monday’s slide to a fresh three-year low. The currency’s weakness is being amplified by rising political noise from Washington, where President Donald Trump has escalated his attacks on Federal Reserve Chair Jerome Powell.

Trump publicly referred to Powell as “a major loser” for failing to lower interest rates and is reportedly exploring options to remove him from the role. This narrative has added to uncertainty around the Fed’s policy independence, and traders are increasingly uneasy about the implications of executive interference with monetary policy.

While Monday’s market dislocation was exacerbated by low liquidity during the Easter Monday holiday, the impact has lingered into Tuesday, especially in USD pairs.

Market focus shifts to PMI data and Fed speeches

The week’s main data releases will come on Wednesday with flash PMI figures for April and Thursday’s U.S. durable goods orders. For now, attention is locked on a series of Fed speakers due throughout Tuesday, including Vice Chair Philip Jefferson, Minneapolis Fed President Neel Kashkari, and Fed Governor Adriana Kugler.

So far, the Fed has offered little indication of a near-term pivot, with most officials advocating patience and continued data monitoring. However, markets are still pricing in around a 62% probability of a 25bps rate cut in June, per the CME FedWatch tool.

Richmond Fed manufacturing data, due Tuesday afternoon, is expected to show further contraction, with consensus pointing to a reading of -6 from -4 previously.

Bond market steady, but risk lingers

U.S. Treasury yields were little changed on Tuesday, with the 10-year yield holding near 4.39% after weeks of steady bond selling. That said, yield volatility remains elevated, and any surprise dovish shift in Fed commentary could trigger a fresh round of repositioning across duration-sensitive assets.