Above: File still of Scott Bessent. Courtesy of Bloomberg.
A definite softening in the U.S. administration's position is detected.
The U.S. Dollar has firmed against rivals after U.S. officials signalled a softer stance on global trade and towards the U.S. Federal Reserve Chair Jerome Powell.
US President Donald J. Trump has said he will not "play tough" with China and that the current 145% tariff on goods imported from China will be "significantly reduced" once he makes a deal with Chinese President Xi Jinping.
"The dollar is enjoying some support thanks to a recovery in US market sentiment. At the moment, no other G10 currency has a higher beta than the dollar to US trade news," says Francesco Pesole, FX Strategist at ING.
Trump's words were backed by Treasury Secretary Scott Bessent's comments that the current tariff situation is "unsustainable" and a de-escalation in the near term is expected.
Regarding the Fed, the U.S. President backtracked on his fiery stance towards Fed Chair Jerome Powell, telling reporters that Powell could be "a little more active in terms of his idea to lower interest rates."
This marks a contrast from Monday's comments that, "Mr. Too Late, a major loser," should "lower interest rates." Monday's comments followed on from a similar attack made last Thursday, raising fears for the Federal Reserve's independence, which would undermine confidence in the U.S. economy and financial markets.
Trump's latest comments, taken together with Bessent's, suggest a definite backtracking by the White House, which will have been spooked by the market's negative reaction to Trump's tariff policy and, more recently, his attacks on the Fed.
"Markets are rejoicing in the temperature reduction, and we await either stagflationary recession, a complete unwind of the tariffs, or something in between," says Brent Donnelly, analyst at Spectra Markets.
The developments were welcomed by markets, which bought discounted stocks and a heavily sold Dollar.
The Pound-to-Dollar scaled a new seven-month high on Tuesday at 1.3423, but has since pared the gains to 1.3316, and it is too soon to say a peak is in.
"GBPUSD looks to be taking a pause following its impressive 10-session rally from 1.2700. Momentum is overbought with an RSI at 71 and the latest couple of candles are showing extended upper shadows, hinting to exhaustion. We see near-term resistance in the lower 1.34s and look to support in the upper 1.32s," says Shaun Osborne, Chief FX Strategist at Scotiabank.
Above: GBP/USD is off its recent highs.
Trump has stated he would like to usher in a new "buy America" era, but thus far his policies have birthed the "sell America" trade of 2025, that sees U.S. stocks, bonds and the Dollar sell in tandem.
Markets will continue to monitor Trump's seemingly off-the-cuff running commentary for signals, ensuring ongoing volatility that limits the Dollar's rebound potential.
"Net-net, we still think the balance of risks remains skewed to the downside for USD in the near term," says ING's Pesole.
However, ING doesn't expect a repetition of the one-way traffic in dollar selling we have witnessed of late.
"Looking a few weeks ahead, our preference is for a stabilisation in the dollar rather than another structural weakening," explains Pesole.