The euro slipped to $1.14 in the foreign exchange market on Wednesday, easing from a recent peak of $1.15, its highest point since 2021, as confidence in the Federal Reserve’s independence returned following remarks by President Trump.
The US dollar regained some strength after Trump clarified that he does not plan to remove Federal Reserve Chairman Jerome Powell, easing concerns over potential political interference in monetary policy decisions.
Market data showed a sharp increase in foreign exchange options activity, as traders and corporations ramped up their hedging against exchange rate volatility amid the euro’s recent strength against the greenback.
Meanwhile, the Canadian dollar declined towards $1.39, slipping from a six-month high of $1.38 recorded on April 22, under pressure from a stronger US dollar.
Despite the retreat, the euro has appreciated more than 5% against the dollar in April, as global investors increasingly challenge the dollar’s dominance and explore alternatives such as the euro.
The euro also found support from projections of higher defense spending, especially from Germany. On the monetary policy front, the European Central Bank (ECB) lowered its deposit rate by 25 basis points to 2.25%—the lowest level since early 2023.
The ECB also dropped references to a “restrictive” policy stance but warned of a deteriorating economic outlook amid rising trade tensions. Market participants now anticipate up to three additional 25bps rate cuts by year-end.
Philip Wee, Senior FX Strategist at DBS Group Research, stated in a report that the recent decline in the U.S. dollar could lead to a consolidation phase rather than a continued selloff, citing mixed macroeconomic signals.
Wee noted that the interplay between President Trump’s unpredictable policy decisions and slowing global growth could limit a clear directional bias in the near term.
In Asia, the offshore yuan hovered around 7.30 per dollar as hints of easing US-China trade tensions emerged. At a press briefing, President Trump indicated a potential reduction in the 145% tariffs imposed on Chinese goods, though he emphasized that tariffs would not be eliminated entirely.
His statement came shortly after U.S. Treasury Secretary Bessent expressed cautious optimism about a possible de-escalation in trade hostilities with China, although he acknowledged that any resolution would require protracted negotiations.
Earlier, Trump had announced a 90-day pause on tariff hikes for most nations but raised levies on Chinese products to 145%, prompting Beijing to retaliate with 125% tariffs on American goods.
In response to rising tensions, China’s central bank urged state-owned enterprises to prioritize the use of the yuan for international transactions—part of a broader initiative to internationalize the currency amid a shifting global trade landscape.
