Trump Has Opened A Door For The Euro To Rival The Dollar

Forex

Economic

Summary:

US President Donald Trump’s trade and financial policies are supposedly shattering investor confidence in the dollar, creating an opportunity for the euro to challenge its global dominance. The Trump administration has created conditions that could lift the European currency to the status of a global reserve currency.

US President Donald Trump's trade and financial policies are supposedly shattering investor confidence in the dollar, creating an opportunity for the euro to challenge its global dominance. The Trump administration has created conditions that could lift the European currency to the status of a global reserve currency.

Some figures in Trump's team see the dollar's international strength as a burden that inflates its value and hurts American manufacturing. Still, others, including Treasury Secretary Scott Bessent, believe a strong dollar is what's best for the US.

The EU does not want the greenback to continue being the most used currency in stablecoins, seeing the digital assets as another source of global demand for US Treasury securities.

Trump's tariff policies erode confidence in the dollar

The dollar's attractiveness is being undermined by a wave of unconventional and unsettling financial ideas floated by Trump's allies. Countries in the bloc are forcing the conversion of Treasury bonds to impose fees on creditors who lend to the US government.

The administration's hostility towards trade partners has made global investors unsure about how reliable American financial instruments are.

Analysts and economists say the moment could be a “Hamiltonian” turning point for the Eurozone, referring to the US founding father Alexander Hamilton's unification of state debts under federal management. Europe is issuing a permanent and sizable pool of joint debt that could help replace the current patchwork of national bonds with a single, liquid Eurozone asset.

One proposed action is to stop paying down the debt issued for the bloc's “Next Generation EU” recovery fund, originally planned to shrink by 2058. Instead, officials could opt to roll it over indefinitely, preserving a permanent euro-denominated safe asset.

Another option is consolidating existing EU-backed debt into a single issuance system to streamline borrowing and provide investors with clarity and scale. It could also support proposals like a joint €150 billion defense spending plan.

The EU could also begin borrowing in advance of its next seven-year budget, which is expected to surpass €1 trillion, to maintain a large, stable euro bond market.

Expanding the Eurozone safe asset market

Europe could take advantage of Trump's tariffs and ask partners to reconsider their dependency on the USD, expanding its trade footprint globally. If trading with the US becomes more troubling, then holding its currency becomes less necessary.

Yet, despite the feasibility of these tools, progress has been stalled by political inertia. Observers argue that what's missing is not technical capacity, but geopolitical will. European leaders must realize America is making strategic blunders that have made the dollar struggle and raised Treasury yields.

Meanwhile, the euro held above $1.13 last week as inflation data for the Eurozone outperformed expectations. Annual inflation remained steady at 2.2% in April, slightly above forecasts, while services inflation rose to 3.9% and core inflation climbed to 2.7%.

President Trump to tax foreign-made films

Elsewhere, President Trump has declared a new 100% tariff on films made in foreign countries. According to the BBC, Trump said the films will be used to spread propaganda against America, and accused foreign governments of luring US-based studios abroad through tax breaks and subsidies.

“It is, in addition to everything else, messaging and propaganda!” Trump wrote on Truth Social. “WE WANT MOVIES MADE IN AMERICA, AGAIN!”

Commerce Secretary Howard Lutnick confirmed the administration would implement the new levy soon. Still, it is unclear if the tariffs would apply to American production companies that shoot overseas or how they would affect films on streaming platforms such as Netflix.

Several blockbusters, including Deadpool & Wolverine, Wicked, and Gladiator II, were all shot outside the US.

Australia's Home Affairs Minister, Tony Burke, told reporters Monday that the government “will be standing up unequivocally for the rights of the Australian screen industry.”

Source: CryptoSlate

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Economic

Forex

Market Overview

On the morning of May 5, Asian gold prices climbed, reflecting a 0.1 percent decline in the US dollar index that made bullion more attractive to holders of other currencies. The uptick in gold to 3,245.01 USD per ounce coincides with heightened uncertainty over trade negotiations between Washington and its partners, as well as growing speculation over the Federal Reserve’s next move.

The recent dollar weakness correlates with bullion’s rally, since a softer greenback typically eases the local‐currency cost of gold for overseas buyers. Although moves in the dollar do not by themselves guarantee sustained gold gains, the current downtrend has encouraged investors to shift into safe-haven assets. Reports last week that China stands ready for further tariff talks with the US have added to the risk-off tone, bolstering gold’s appeal as a portfolio diversifier.

Fed Policy Expectations

Despite repeated calls from former President Trump for rate cuts, US labor market data released in April showed employers added more jobs than anticipated and the unemployment rate held steady at 4.2 percent. These figures have restrained expectations for an imminent Fed easing, pushing traders to await the central bank’s decision at the end of this week and listen for commentary from Fed officials. The resulting pause in rate-cut bets has lent support to gold, as any dovish shift would likely undermine the dollar further.

In Vietnam, SJC-branded gold bars were quoted at 117.80–119.80 million VND per tael (buy–sell) on the morning of May 5. Although international spot prices drive local premiums, factors such as domestic demand and import taxes will continue to shape Vietnamese retail levels.

With the dollar under pressure and the Fed’s policy path still murky, gold is poised to maintain its recent strength. Investors will monitor US economic releases and central bank communications for clues on monetary accommodation, knowing that even modest shifts in policy expectations can translate into significant moves in both currency and bullion markets.

Source: Reuters

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Economic

Revised Growth Projections and Underlying Drivers

In its April 2025 World Economic Outlook, the International Monetary Fund trimmed its forecast for South Korea’s GDP growth, citing a combination of weaker external demand and persistent domestic headwinds. Actual growth is expected to register just 1.03 percent in 2025, before gradually rising to 1.45 percent in 2026 and surpassing 2 percent in 2027 (2.10 percent) and 2028 (2.11 percent). A slight pullback to 1.95 percent is anticipated in 2029. Averaging these figures yields a five-year growth rate of 1.73 percent—0.07 percentage point below the Bank of Korea’s own 1.80 percent potential estimate. The direct causal link between export performance and GDP outcomes underscores how policy-driven shifts in global trade translate into broader economic weakness.

While exports account for a large share of South Korea’s GDP, domestic consumption and investment have also failed to pick up sufficiently to offset foreign trade pressures. Household spending growth has been subdued amid elevated real interest rates and high household debt, creating a correlational relationship between tighter credit conditions and lackluster consumer outlays. Business investment has likewise been slow to recover, reflecting corporate caution in the face of geopolitical uncertainties and thin profit margins. These factors combine to sap aggregate demand, reinforcing the IMF’s view that absent significant policy stimulus, growth will remain stuck below historical norms.

Underperformance in Export Sector

Export volumes, which climbed 6.32 percent in 2024, are forecast to virtually stall at 1.01 percent growth in 2025 before a modest rebound to 1.71 percent in 2026. From 2027 through 2030, exports are expected to grow at roughly 3 percent per year. The stark slowdown is a direct consequence of recent U.S. tariff increases, creating a clear cause-and-effect relationship: higher import duties have directly reduced South Korea’s competitiveness in key markets. In addition, ongoing uncertainties in semiconductor demand and shifting supply-chain configurations have had a correlational impact on machinery and auto exports. Because South Korea’s economy is heavily trade-oriented, these export headwinds carry over directly into slower overall expansion.

Beyond growth rates, the IMF warns that South Korea’s share of global GDP on a purchasing-power-parity basis will fall from 1.78 percent in 2020 to 1.53 percent by 2030. Although average annual growth across 2026–2030 is projected at 1.89 percent—somewhat stronger than the 1.73 percent seen in 2025–2029—this uptick is insufficient to arrest the long-term erosion of South Korea’s economic weight. The relationship here is correlational: as other emerging markets outpace Korea, its relative position shrinks even if its own growth improves modestly. This trend highlights the strategic challenge of maintaining global influence amidst intensifying competition.

Policy Responses and Strategic Imperatives

Analysts such as Jeong Yong-taek of IBK Investment & Securities anticipate further downward revisions to the 2025 growth forecast—potentially below 1 percent—once first-quarter GDP data are fully incorporated. To counteract this trajectory, a multi-pronged policy approach is needed. On the fiscal front, targeted stimulus measures aimed at infrastructure modernization and green transition could generate a causal uplift in domestic demand. Simultaneously, structural reforms to enhance labor market flexibility and incentivize private investment would address persistent productivity bottlenecks. Trade diversification efforts—seeking new markets and forging regional partnerships—could mitigate overreliance on traditional export destinations, directly offsetting tariff-induced headwinds.

The IMF’s revised outlook serves as a warning that without decisive action, South Korea risks entrenching a period of sub-par growth that could undermine both living standards and fiscal sustainability. The causal interplay between export dynamics, domestic demand weakness, and global economic positioning underscores the need for cohesive strategies. Strengthening innovation in high-value industries, accelerating digital adoption, and deepening collaboration in regional value chains would not only spur growth but also shore up international standing.

In conclusion, while South Korea’s economy remains resilient, the IMF’s projections highlight a confluence of causal and correlational factors suppressing growth. Addressing these challenges will require bold policy measures to reinvigorate exports, bolster domestic demand, and preserve the country’s long-term competitiveness on the global stage.

Source: IMF

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Forex

While analysts agree that the dollar remains unmatched in its global role for now, growing geopolitical tensions, erratic U.S. policies, and investor skepticism are prompting renewed scrutiny.

No Clear Rival Yet for the Dollar’s Throne

Since the end of World War II, the U.S. dollar has reigned as the default currency for global trade and reserves. Attempts to dethrone it have so far failed. Today, the euro accounts for 20% of reserves, the yen 6%, and the British pound just 5%, according to IMF data. Around 90% of all forex trades globally still involve the dollar, underlining its centrality to international finance.

Market strategists like Brent Coggins (Triad Wealth Partners) argue that the euro faces fragmentation, the yuan is not fully convertible, and the yen lacks scale—leaving no credible replacement. Even recent efforts by BRICS nations to create a common currency have stalled, shifting instead to promoting local currencies in trade, which, ironically, underscores the dollar’s resilience.

Mounting Pressures and a Crisis of Confidence

Nevertheless, confidence in the dollar has taken a hit. President Trump’s protectionist trade policies, verbal attacks on the Federal Reserve, and a volatile macroeconomic environment have created uncertainty. Foreign investors are increasingly cautious about U.S. Treasury bonds, questioning their safety and long-term value. Stock portfolios are being rebalanced as investors reduce exposure to U.S. tech-heavy indices and consider diversification.

Arun Sai, senior strategist at Pictet Asset Management, warns of a “crisis of trust” surrounding U.S. assets. As U.S. fiscal deficits widen and domestic political risk rises, the dollar is losing some of its appeal as a safe haven. The greenback has dropped 8% this year compared to a basket of global currencies.

Temporary Correction or Long-Term Trend?

Despite the volatility, many economists believe this is a temporary shift. Nick Bennenbroek (Wells Fargo) calls the recent dollar sell-off “atypical and likely short-lived,” pointing to the dollar’s deeply entrenched role in global finance. Arun Sai also notes that U.S. markets and corporations still offer solid fundamentals, even if global investors are hedging their bets.

That said, capital is increasingly flowing into gold—now at record highs—German bonds, and emerging markets. Asset managers are also looking more favorably at European and UK stocks. According to Sai, Trump’s policies may be encouraging capital to stay domestic, but investors are still exploring more regional and less dollar-dependent opportunities.

Dominance Endures, but Flexibility is Key

The U.S. dollar is unlikely to lose its global dominance in the near future due to the lack of viable alternatives. However, its supremacy is not immune to erosion. As political and economic uncertainties persist, especially under Trump’s tariff-heavy approach, global diversification away from dollar assets may accelerate—at least in the short term.

In essence, while "King Dollar" may be bruised, it is far from dethroned. But the era of unquestioned trust in the dollar's supremacy may be shifting into one where investors demand greater resilience, stability, and clarity from U.S. leadership.

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Diana Wallace

Forex

Technical Analysis

FundamentalOverview

The USD continues to besupported in the short-term as we head into the FOMC decision and the firsttrade deal. This has most likely to do with positioning rather thanfundamentals. The short dollar trade got very overstretched so positive news onthe tariff front and good economic data is providing a pullback.

The downside seems to belimited for now as the Fed is likely to reiterate its commitment for just tworate cuts this year unless the labour market weakens notably. The NFP reportlast Friday, was much better than expected, so it gives the Fed a reason tokeep its neutral stance for now. In the medium term though, the US Dollarshould keep on depreciating as the path of least resistance for the Fed remainsto cut rates.

On the JPY side, thecurrency has been driven mainly by global events rather than domesticfundamentals. Alongside the Swiss Franc, it’s been the favoured safe haven inthe currencies space amid the swings in risk sentiment. On the monetary policyfront, the BoJ kept interest rates unchanged as expected anddelivered a dovish message.

This was then echoed by BoJGovernor Ueda which placed a great deal on trade developments. In summary, thecentral bank is likely to go faster on rate hikes in case we get a good tradedeal and delay rate adjustments in case the trade deal disappoints.

USDJPYTechnical Analysis – Daily Timeframe

On the daily chart, we cansee that USDJPY continues to pull back from the key 140.00 handle. From a riskmanagement perspective, the sellers will have a better risk to reward setuparound the major trendline to position for furtherdownside, while the buyers will look for a break higher to increase the bullishbets into the 151.00 handle next.

USDJPY TechnicalAnalysis – 4 hour Timeframe

On the 4 hour chart, we cansee that we have a strong supportzone around the 144.00 handle where we can also find the upward minor trendlinefor confluence.This is where we can expect the buyers to step in with a defined risk below thetrendline to position for a rally into the major trendline. The sellers, on theother hand, will look for a break below the trendline to invalidate the bullishsetup and pile in for a drop back into the 140.00 handle.

USDJPY TechnicalAnalysis – 1 hour Timeframe

On the 1 hour chart, there’snot much else we can add here as the price is testing the support zone. Thebuyers might want to split their orders and lean on both the support and thetrendline. The sellers, on the other hand, will want to wait for a break belowthe trendline before increasing the bearish bets. The red lines define the average daily range for today.

Source: ForexLive

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Economic

Sharp PMI Decline Signals Defensive Shift in Vietnam’s Manufacturing Sector

April 2025 marked a severe downturn in Vietnam’s manufacturing activity, with the PMI plunging from 50.5 in March to 45.6, according to S&P Global Market Intelligence. This steep drop — the most significant in nearly two years — reflects the immediate impact of new U.S. tariffs, with broad-based declines across key subcomponents including new orders, exports, output, and employment.

The PMI survey, conducted between April 9 and 22, coincided with the enforcement of U.S. tariffs on Vietnamese goods. This external shock led to the sharpest fall in new orders in almost two years. Export orders declined for the sixth consecutive month, registering the steepest drop since June 2023 — a clear sign that Vietnam’s core export-driven manufacturing base is under heavy pressure.

Output and Employment Shrink Rapidly

Output levels reversed course after a brief uptick in March, with April seeing the fastest rate of contraction since January 2023. Businesses scaled back production to align with reduced demand and rising trade uncertainty. Simultaneously, employment in the sector fell for a seventh consecutive month — at the fastest rate in three and a half years — as backlogs were insufficient to sustain current staffing levels.

Faced with declining demand, firms cut back on purchasing activity at the fastest pace since May 2023. Inventories of purchased inputs fell to their lowest level since September 2024, signaling a shift toward preserving liquidity rather than stocking for future orders. This defensive strategy reflects weakened business confidence and heightened caution over capital allocation.

Softening Input Costs Offer Limited Relief

Amidst the downturn, input cost inflation eased considerably. April saw the slowest rise in input prices since the global price surge began in August 2023. Firms cited lower oil and international shipping costs, providing marginal relief to profit margins and possibly improving gross margins by Q2–Q3. However, price cuts to attract customers have continued, marking the fourth straight month of product price deflation — the sharpest in 21 months.

The ongoing price drops, while pressuring short-term profits, help anchor inflation expectations. This may pave the way for more flexible monetary policies in the second half of 2025. Financial support tools such as concessional credit or liquidity restructuring could be expanded to assist businesses coping with trade turbulence.

Investor Implications: PMI as a Lead Indicator of Earnings Cycle

For financial markets, the PMI is more than a technical signal — it serves as a leading indicator of earnings and capital flows. A sustainable rebound in stock valuations and investor optimism will require clearer signs of order stability, production recovery, and input cost control. Once these align, cyclical sectors like logistics, supporting industries, materials, and industrial real estate will likely become focal points for capital reallocation.

As noted by Andrew Harker, Economics Director at S&P Global, it is vital to track Vietnam’s PMI trends in the coming months to understand how the real economy is evolving under stress. This serves as a critical signal not just for manufacturers, but also for policymakers and investors seeking early insights into Vietnam’s economic trajectory.

Source: S&P Global

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Economic

China–U.S. Trade War

Trump Tariffs Drag on Global Growth Amid Mounting Corporate and Economic Strains

President Donald Trump’s aggressive tariff regime is increasingly disrupting the global economic engine that once relied on relatively predictable and open trade. With baseline tariffs at 10% and punitive rates—such as 145% on Chinese goods—many multinational corporations and national economies are now revising their growth forecasts downward, citing the ripple effects of trade uncertainty.

From small e-commerce sellers to global brands like Electrolux, Logitech, Diageo, and Volvo Cars, firms are either exiting key markets or slashing revenue targets. A particularly devastating blow for small exporters came with the elimination of the "de minimis" exemption, which previously allowed shipments under $800 to enter the U.S. duty-free. Cindy Allen, CEO of Trade Force Multiplier, said that “we’re going from zero to 145%, which is untenable for companies and untenable for customers.”

Demand Shock Ripples Through Industrial Economies

The impact is already evident in factory surveys. China's manufacturing activity in April contracted at its fastest pace in 16 months, while the UK posted its sharpest drop in factory exports in nearly five years. Although Germany saw a temporary boost in output, analysts warn this may reflect manufacturers rushing deliveries before new tariffs kick in—signaling a looming downturn.

This “front-loading” effect may also explain India’s unexpected spike in manufacturing activity, but economists like Shilan Shah at Capital Economics note that India may become a strategic winner by absorbing U.S. demand diverted from China. Major U.S. firms like Apple are already shifting supply chains toward India, which faces lower tariff exposure.

Tariff Uncertainty Reaches Central Banks and Governments

The uncertainty is not only disrupting corporate operations but also influencing national economic strategies. The Bank of Japan cut its growth forecast last week, while European and MENA-region forecasters cited tariff risks in their downward revisions. For central banks, the silver lining is that the disinflationary impact of the tariffs might create room for interest rate cuts. The Bank of England, for instance, is expected to lower rates this week.

However, the broader issue remains whether the Trump administration’s trade overhaul can lead to meaningful structural shifts elsewhere. Some economists suggest it may eventually force China to boost domestic stimulus or push the euro zone to resolve internal market inefficiencies. Yet for now, the dominant narrative is one of suppressed demand, lower trade volumes, and heightened business risk.

Outlook: The Longer the Trade War, the Deeper the Drag

While the Trump administration claims it is close to resolving tensions with India, Japan, and South Korea, Beijing has yet to agree to formal talks, despite suggesting it is evaluating Washington’s latest offer. Meanwhile, tariffs on autos, steel, aluminum, and other strategic goods remain in place, weighing heavily on global supply chains.

Isabelle Mateos y Lago of BNP Paribas warns the situation may deteriorate further: “The U.S. tariffs end-game may be further away and at a higher level than previously thought.” With inflation easing but growth lagging, the world economy may continue to stagger under the weight of Trump’s unpredictable trade maneuvering—unless diplomatic breakthroughs are achieved soon.