President Donald Trump speaks to members of the media outside the White House, Wednesday, April 23, 2025. (Official White House Photo by Joyce N. Boghosian).
Risk-on / Risk-off (ro-ro) is firmly in charge of the Pound-to-Euro exchange rate.
Well, that didn't last long: a two-day rally in stock markets has already faltered as investor sentiment capitulates again.
Following a rally, European markets are in the red again, and U.S. futures are pointing to another disappointing open, which is feeding into some predictable trading patterns in FX.
"The markets this morning are correcting to the downside after yesterday's rebound on this fragile optimism," said Ipek Ozkardeskaya at Swissquote Bank.
The souring sentiment is etched onto foreign exchange markets, with Pound Sterling registering gains against the Dollar but weakness against the Euro, as is typical of the so-called 'Sell America' trade that dominates financial markets in 2025.
"Positive sentiment does not appear to have legs, as Trump was once again quite vocal overnight. Despite hopes that he is preparing to close some of the many outstanding issues – with his trade representatives preparing for 14 meetings with foreign trade ministers - markets feel like they are battling the Lernaean Hydra like the mythical Hercules," says Achilleas Georgolopoulos, Senior Market Analyst at Trading Point.
Although Trump has delivered some overtures, he contradicted them on Wednesday, telling the media that there would be no tariff exemptions for car imports and that he was looking at raising tariffs on truck imports.
The contradictions and uncertainty all feed the 'Sell America' narrative, which is proving to be supportive of the Euro. It's little surprise to see the Euro-Dollar rate pushing higher again through the Thursday session, recording a 0.60% advance to 1.1381.
The Pound-to-Dollar exchange rate is up 0.36%, confirming Sterling lags the Euro in the pursuit of the Dollar. This means the Pound-to-Euro exchange rate is lower on the day by 0.12% at 1.1690.
Current price action looks to be a partial reversion of a recent stock market rebound that helped the Dollar recover against the Pound and Euro and there are no major news triggers causing alarm.
The best explanation for this price action in financial markets is a distinct lack of good news to spur the recovery.
Given we are in a 'bear regime', good news is required to drive gains, and without it, the default is for stocks and the Dollar to fall.
In the 'bull regime' we have been accustomed to for many years, the default was for equities and the Dollar to 'melt up' in the absence of any news.
The distinction is important for currencies: no good news = gains for the Euro and losses for the Dollar.
President Donald Trump's next comments regarding global trade are therefore keenly awaited, with investors wanting to see more evidence that his administration is softening its stance.
This week, it has dawned on Trump and his team that the U.S. economy and financial markets will suffer under his tariffs and desire to gain influence with the Federal Reserve.
Markets and the Dollar rallied on Tuesday and Wednesday after Trump said he was looking to lower tariffs on China, while he also toned down his rhetoric on Fed Chair Jerome Powell.
"The dollar has further to run according to our models, but in our view requires Trump to deliver more positive news," says Francesco Pesole, FX Strategist at ING Bank.
Importantly, China has yet to respond to the overtures in a meaningful fashion, leaving markets in limbo.
"The narrative restores a degree of normalcy and diplomacy after three weeks of chaos but for investors the path between words and action towards a ratcheting down in tariff levels with China and other trading partners remains unclear," says Kenneth Broux, a strategist at Société Générale.