Scott Bessent, upon becoming Treasury Secretary, vowed not to meddle in Fed affairs. Yet, by May, he’s already offering advice to the central bank. The culprit? A string of disappointing U.S. economic data. Let’s discuss it and make a trading plan for EUR/USD.
The article covers the following subjects:
Major Takeaways
- The White House is directing the Fed’s attention to signals in the bond market.
- Data indicates a cooling U.S. economy.
- The jobs report will test the dollar’s resilience.
- A rally in EUR/USD would justify building up longs opened at 1.1285.
Weekly Fundamental Forecast for Dollar
The deeper you go, the messier it gets. Economic data continues to signal a U.S. slowdown, yet the dollar, supported by U.S. stock indices, remains firm. For EUR/USD bears, Beijing’s willingness to negotiate with Washington matters more than the U.S. manufacturing sector hitting a five-month low. More than rising jobless claims, which are signaling labor market troubles. Don’t trust your eyes—trust words?
US Business Activity Trends
Source: Bloomberg.
Markets seem to be testing their limits. They’re asking: Can a series of weak data lead to bad news on jobs? The April non-farm payrolls report, the first since the White House imposed sweeping tariffs, will likely reflect mass layoffs of government workers and deportations.
Weak payroll numbers will give Trump’s critics more ammunition to hurl rotten tomatoes, while strong figures will silence them, at least for a while. But something tells me the April jobs report will disappoint. And I’m not alone in thinking so.
Scott Bessent lost his nerve. The Treasury Secretary declared that the bond market is clearly signaling the Fed to resume monetary expansion, noting that two-year treasury yields are below the federal funds rate. Yet, Bessent had promised not to advise the Fed when he took office. His stance shifted quickly under pressure from mounting evidence of a cooling U.S. economy.
Deviation of Treasury Yields from the Fed’s Rate
Source: Wall Street Journal.
In reality, two-year treasury yields have mostly been below the Fed’s rate for over two years. The market expects at least three monetary expansion moves in 2025 and is confident the cycle will resume in July. But there have been times when investors demanded 6–7 rate cuts and got only 2–3.
The Fed knows what it’s doing. It’s highly unlikely that Jerome Powell and his colleagues will bow to White House pressure and cut rates at the May 6–7 FOMC meeting. This event will be the highlight of next week’s economic calendar. For now, forget GDP data and focus on employment.
Weekly Trading Plan for EURUSD
Disappointing data will finally force U.S. stock indices to face reality. Their uninterrupted seven-day rally has served the U.S. dollar well, for now. Therefore, a drop in the S&P 500 is a strong case for building up EUR/USD longs opened at $1.1285 or buying the pair on pullbacks.
This forecast is based on the analysis of fundamental factors. It considers official statements by financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also taken into account.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
