The dollar weakened on Tuesday as investors awaited concrete progress on trade agreements between the United States and its trading partners. This occurred on the first day of the U.S. Federal Reserve’s meeting, adding to the market’s cautious sentiment. The anticipation surrounding trade deals, coupled with underlying economic concerns, fueled the dollar’s decline against major currencies.
Around 6:55 PM GMT, the dollar experienced notable losses. It depreciated by 0.47% against the euro, reaching a rate of $1.1369 per euro. The dollar also slid against the British pound, falling by 0.58% to $1.3375 per pound. The currency market’s movements reflected a broader shift in investor sentiment, increasingly focused on the tangible realization of trade agreements.
Adam Button of ForexLive highlighted the market’s renewed focus on trade. He noted the White House’s repeated promises of imminent trade deals with various economic powers over the past weeks. However, these agreements have yet to materialize, leading to investor skepticism. The lack of concrete progress has weighed on the dollar, as market participants grow weary of unfulfilled promises.
President Donald Trump’s remarks on Tuesday regarding trade with Canada further contributed to the uncertainty. While expressing a desire for a new trade agreement with Ottawa during a meeting with Canadian Prime Minister Mark Carney, Trump also voiced reservations about accepting cars or steel from Canada. These mixed signals added to the market’s unease and fueled concerns about the future of trade relations between the two countries.
Adding to the complex trade landscape, China’s Foreign Ministry issued a statement emphasizing that the United States must alter its "threatening" approach to achieve a trade agreement. According to Xinhua news agency, China believes a more constructive and less confrontational approach is necessary for successful negotiations. This statement underscores the ongoing challenges in U.S.-China trade relations and the potential for further delays in reaching a comprehensive agreement.
Adam Button emphasized that the market has reached a point where it demands more than just talk. Investors now require signed agreements or, at the very least, tangible evidence of progress. The continued reliance on promises without concrete action has diminished their impact on the market and contributed to the dollar’s vulnerability.
Analysts at Monex USA echoed the concerns about the potential for a sharp economic slowdown resulting from the implementation of tariffs. The imposition of tariffs on goods traded between countries can disrupt supply chains, increase costs for businesses and consumers, and ultimately lead to reduced economic activity. The uncertainty surrounding the impact of tariffs has further fueled investor caution and contributed to the dollar’s decline.
In contrast to the heightened focus on trade, the Federal Reserve’s meeting was perceived as less influential for currency traders. Adam Button suggested that the meeting was not a significant factor for currency markets, anticipating no rate cuts or signals of a potential rate cut in June. The prevailing expectation that the Fed would maintain its current monetary policy stance diminished the meeting’s potential impact on the dollar.
Outside of the major currency pairs, political and economic instability in Romania had a pronounced effect on its currency. The prospect of far-right candidate George Simion winning the Romanian elections on May 18, following his overwhelming victory in the first round, raised concerns about the country’s commitment to its pro-EU stance and the government’s ability to implement fiscal tightening measures.
Nicholas Farr of Capital Economics highlighted these concerns. Romania’s substantial public deficit, the highest among European Union member states, further exacerbated the situation. The combination of political uncertainty and economic vulnerabilities weighed heavily on the Romanian leu.
In response to the escalating instability, the Romanian leu experienced significant declines. It depreciated by 1.86% against the dollar, reaching a rate of 4.4818 lei per dollar. The leu also fell by 2.31% against the euro, reaching a rate of 5.0941 lei per euro. The currency’s decline reflected investor unease and a flight to safer assets.
In summary, the dollar’s weakness on Tuesday stemmed from a combination of factors. Lingering uncertainty surrounding trade agreements, concerns about a potential economic slowdown due to tariffs, and the perceived lack of influence from the Federal Reserve’s meeting all contributed to the dollar’s decline against major currencies. Political and economic instability in Romania further fueled the dollar’s strength against the Romanian leu. The currency market’s movements reflected a broader shift in investor sentiment, increasingly focused on concrete progress and tangible outcomes.
