The US Dollar Index And Economic Indicators
The US Dollar Index fell below 100.00, reflecting diminishing investor confidence alongside mixed economic indicators. The University of Michigan’s sentiment index dropped to 50.8, while inflation expectations rose to 6.7%.
The US Producer Price Index increased by 2.7% year-on-year in March, with core rates declining slightly. Jobless claims rose to 223,000, although continuing claims decreased to 1.85 million.
Minneapolis Federal Reserve President Neel Kashkari indicated the economic impact of trade tensions would depend on the resolution of uncertainties. He noted this event poses a significant decline in confidence, akin to the onset of COVID-19 in March 2020.
Volatility And Market Strategies
What we’ve seen so far is a rather telling confluence of macroeconomic forces pressuring EUR/USD, even in the face of a weaker US dollar. Price action softening around the 1.1360 level suggests markets have begun absorbing more downside risk than the currency pair had previously reflected. Despite earlier gains, the movement suggests a repricing of relative safety, driven almost entirely by global trade concerns.
China’s decision to retaliate with tariffs as high as 125% after the US moved its own to 145% on Chinese imports brings a renewed round of anxiety. The EU’s decision to delay countermeasures for 90 days might seem like an attempt to stall escalation, but for the moment it’s more symbolic than market-moving. Underneath, the direction of such policies points towards a protracted trade confrontation, and markets appear to be preparing for a medium-term disruption in global order flows.
This pressure is reverberating across dollar dynamics. With the Dollar Index sliding below 100.00, recent moves tell us more about sentiment than strength. A weaker dollar usually offers support to EUR/USD — however, that correlation has started to fray, and that’s not without reason. The underlying economic pulse in the US has turned less clear, shown first by the sharp dip in consumer sentiment. We were watching that University of Michigan reading, and the drop to 50.8 is alarming. It’s not just a number out of context — it’s the second-lowest reading of the post-pandemic era, indicating that households are probably feeling the pinch far earlier than policymakers are reacting.
If inflation expectations from that same survey rising to 6.7% weren’t enough of a concern, the Producer Price Index settling at 2.7% year-on-year confirms upstream cost pressure hasn’t washed out. Mixed signals — with core PPI easing modestly — aren’t helping clarity. But it’s the increase in jobless claims to 223,000 that might be the more market-relevant input short-term, particularly when paired with a reduction in continuing claims. Fade in initial claims, and we could be seeing the first hints of softness in labour demand, while the drop in continuing claims shows there’s still enough churn to keep hiring options open — for now.
We took careful note of Kashkari’s remarks, which mirrored what we are seeing in volatility pricing now — that confidence is slipping, and quickly. By drawing comparison to March 2020, his comments can’t be dismissed as routine caution. That period felt very different, but the core reaction — uncertainty spilling into financial conditioning — has strikingly similar effects now. So from here, we act accordingly.
Volatility remains underpriced in short-term option contracts, particularly with EUR/USD implieds sitting beneath their 30-day averages. This offers an opportunity if one is skewing towards gamma exposure. However, for directional strategies, the fading rally in EUR/USD means any bullish bias is currently fighting both technical rejection and fundamental strain. We are watching the options surface adjust gradually, but risk reversals remain hesitant to price in bullish euro momentum in the near term.
Cross-asset correlations may provide additional confirmation. The lack of safe-haven flows to the dollar is unusual, and with gold creeping higher, it suggests positioning is shifting more defensively, just not into USD — a clue that risk appetite is rotating, not retreating entirely.
We would stay nimble. Macro triggers remain event-sensitive, and betting heavily on either EUR or USD direction over the next fortnight seems less advantageous than exploiting dislocations in volatility pricing and relative rate expectations. While rate cuts are not imminent, forwards are adjusting to the idea that restrictive policies may be doing more damage than anticipated.
In short, aim for tighter risk controls in directional positioning, with a tilt towards strategies that benefit from sharper moves — because these next few weeks might not reward waiting.
