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Dollar stays soft ahead of Fed decision
The US Dollar trades cautiously ahead of the Fed decision, while China's latest PMI data reflects mounting pressure from US tariffs and softening demand, fueling global growth concerns.
Dollar remains under mild pressure as markets await Fed guidance; June rate cut odds fall below 30%.
China’s Caixin PMI composite drops to 51.1, signaling weaker momentum and growing tariff impact in Q2–Q3.
All eyes on Carney–Trump meeting, with Canada seeking tariff relief on energy and minerals.
Currency markets were subdued on Tuesday, with the US Dollar remaining on the soft side as investors exercised caution ahead of the Federal Reserve’s rate decision due Wednesday. While no policy change is expected, market participants are closely monitoring Fed Chair Jerome Powell’s tone for clues about the likelihood of a rate cut in the coming months.
Recent economic data, particularly in the labor market, has shown surprising resilience, prompting a sharp re-pricing of Fed expectations. The probability of a rate cut in June has dropped below 30%, according to CME FedWatch data. Traders now see September or later as more plausible for the next policy move, barring any shock deterioration in macro indicators.
But beyond monetary policy, geopolitical uncertainty — especially related to global trade — continues to cast a long shadow. Canadian Prime Minister Mark Carney is set to meet with US President Donald Trump in Washington on Tuesday, in their first official meeting since Carney’s April 28 election victory.
Carney’s government is expected to push for relief on tariffs targeting Canadian energy exports and critical minerals, positioning these as key areas for bilateral cooperation. However, Ottawa is signaling that it will prioritize substance over speed, with Carney emphasizing that any deal must be “sustainable, strategic, and in Canada’s long-term interest.”
Meanwhile, concerns over trade disruptions are already beginning to show in key economic indicators.
China’s services sector slows as tariffs bite
China’s Caixin PMI composite reading slipped to 51.1 in April, from 51.8 in March, with the decline led by a sharper-than-expected slowdown in the services sector. The services PMI fell to 50.7 — its weakest pace of growth since September 2024 — amid falling domestic orders and subdued foreign demand.
New business in the services sector grew at the slowest pace in over two years, largely due to trade-linked disruptions. While some firms noted an uptick in tourism-related activity, this wasn’t enough to offset broad weakness across key service industries.
Employment in the sector declined for the second consecutive month, and input cost inflation surged to a three-month high due to increased wages and raw material costs. Yet, output prices continued to fall — marking the third straight monthly drop — as companies attempted to preserve competitiveness in an increasingly strained environment.
Business confidence also took a hit, with sentiment falling to the second-lowest level on record since Caixin began data collection in 2005. This reflects heightened fears that the full brunt of US tariffs will hit Chinese firms more acutely in Q2 and Q3, eroding profit margins and weighing on hiring.
